Morgan Stanley: US September CPI expected to rise again, continued transmission of tariffs pushing up core inflation.

Morgan Stanley stated that due to the gradual transmission of tariff costs, rising energy prices, and other factors, the upcoming US Consumer Price Index (CPI) report for September, set to be released on October 24, is expected to show that core CPI will remain high. Overall inflation levels are slightly higher than core inflation, while price trends in specific sectors such as rent and medical services are mixed. The bank predicts that core CPI in September will increase by 0.32% month-on-month and 3.12% year-on-year, indicating that core goods inflation has remained positive for the fourth consecutive month, mainly due to the gradual transmission of tariff-related costs to consumers. Morgan Stanley estimates that tariffs have contributed around 25-30 basis points to the year-on-year core CPI so far this year, and if the data meets expectations, this contribution will increase to 35 basis points, close to half of the total expected tariff impact (assuming tariffs remain at current levels). Overall inflation performance is expected to be stronger than core inflation. The bank forecasts a 0.41% month-on-month increase in overall CPI in September, higher than core CPI. This is primarily due to a significant rebound in energy prices, expected to rise by 2.00% month-on-month in September. In contrast, food price inflation is expected to slow down, with an anticipated 0.19% increase month-on-month, lower than August's 0.46%. In specific categories, core goods prices are expected to continue to rise moderately, with clothing, new car, and used car prices slowing down in growth while other categories are expected to accelerate after an unexpected decline in August. Housing rent was slightly above trend in August but is expected to decrease in September with a month-on-month growth rate lower than 0.30%. Core service inflation excluding housing is expected to rise to 0.40%, mainly driven by medical services, while airfare and hotel price growth are expected to weaken. Morgan Stanley also highlighted several key observations: the gradual but slowing transmission of tariffs, a decrease in ISM and PMI price indicators that reduce the likelihood of core goods monthly growth exceeding 0.4%; continuing moderation in auto insurance inflation; and potential deviations in the seasonal adjustment factors for used car CPI that may affect policymakers' accurate interpretation of inflation data. Additionally, Morgan Stanley predicts a 0.30% month-on-month increase in core Personal Consumption Expenditure (PCE) Price Index in September, slightly higher than the previous month's 0.23%. Financial services inflation is expected to remain high at 0.53%, reflecting the strong performance of the stock market in July and August. Medical services inflation is also expected to rise from 0.09% in August to 0.50%. Core service PCE excluding housing is expected to increase by 0.32% month-on-month.