U.S. September CPI data will be released this Wednesday (October 14). It will be a key variable determining the near-term direction of crude oil and U.S. Treasuries over the coming days.
First, a look at market expectations
Current market consensus:
- U.S. headline CPI is expected to rise about 3.6%–3.7% year over year and 0.6% month over month in September, driven mainly by energy prices;
- Core CPI is expected to rise about 0.2% month over month and 2.4%–2.5% year over year, indicating relatively moderate underlying inflationary pressures;
- The probability of a Fed rate hike in October has fallen significantly, with the market more focused on whether there is still room for a hike in December.
In other words, headline CPI may come in high, but core CPI is the key factor that truly influences policy pricing and asset prices.
Impact on U.S. Treasuries
Treasury prices and yields move in opposite directions. After the CPI release, markets mainly look at whether the data is above expectations.
CPI scenario Impact on Treasury yields Impact on Treasury prices
Core CPI above expectations Yields may rise Prices under pressure
Core CPI in line with expectations Relatively limited volatility Trading in a high range
Core CPI below expectations Yields may fall Prices may rebound
The 10-year Treasury yield is currently near a multi-year high, and markets are sensitive to a renewed rise in inflation. If core inflation is stronger than expected, short-term yields may react more sharply; if the data is moderate, pressure on the bond market may ease.
Impact on crude oil
The relationship between crude oil and CPI is not simply linear; it is more of a “two-way interaction”:
- Rising oil prices push up CPI, especially the energy component;
- A hotter-than-expected CPI could also strengthen expectations of rate hikes, potentially pushing up the dollar and Treasury yields and putting pressure on oil prices;
- However, crude oil is also affected by Middle East geopolitics, supply risks, and demand expectations, so CPI is not the only factor.
So after the CPI release, crude oil could face two possible scenarios:
CPI scenario Possible crude oil reaction
Core CPI remains moderate Rate hike pressure eases, risk appetite improves, and oil prices may not necessarily fall sharply
Core CPI remains elevated Rate hike expectations rise, pushing up the dollar and Treasury yields and potentially weighing on oil prices
Rising geopolitical supply risks Oil prices may strengthen independently, diminishing CPI's influence
How to interpret this release
The key thing to watch this time is whether core CPI remains at a moderate level of around 0.2%. If core inflation does not rebound significantly, concerns about a rate hike in October will ease, and upward pressure on Treasury yields may lessen. But if core inflation unexpectedly rises, Treasury yields could surge again, putting crude oil under greater pressure from tighter financial conditions.