The September US Consumer Price Index report will be released on Wednesday at 8:30 AM ET. Together with Thursday's Producer Price Index, the release will hand traders another key piece of the inflation puzzle as markets assess whether the Federal Reserve will need to tighten policy further. The CPI tracks the average change in prices consumers pay for a basket of goods and services, while the PPI measures prices at the wholesale level; the two reports will also allow analysts to gauge the PCE and core PCE indexes, the Fed's preferred inflation measures, from both sets of readings.

Expectations are as follows:

• Headline CPI, month over month: +0.6% expected, versus +0.4% last month
• Headline CPI, year over year: +3.6% expected, versus +3.4% last month
• Core CPI, month over month: +0.2% expected, versus +0.3% last month
• Core CPI, year over year: +2.5% expected, versus +2.4% last month

The core figures will be the focus. According to the analysis, a core reading of 0.1% month over month — or better — paired with a 2.4% year-over-year rate — or better — would signal movement in the right direction. That benchmark matters because the Federal Reserve's stated goal is 2% inflation over the long run, measured through the PCE index, so progress toward that level is what markets are trying to detect.

The key question: how far are energy costs spreading?

Higher energy prices are expected to drive the stronger headline print. The more important question for the broader inflation outlook is whether those costs are filtering into other goods and services. That places the core reading, which strips out food and energy because those categories tend to swing sharply month to month, firmly in focus.

Last month, gasoline prices rose 3.9%, accounting for more than one-third of the monthly headline increase. Core prices, however, also climbed 0.3%, with gains in categories including airline fares, lodging and used vehicles. Traders will be watching whether those underlying pressures eased in September.

A 0.2% monthly core reading represent a slowdown from August, even if the annual rate edges higher. The two measures can move in different directions because the year-over-year comparison also depends on the reading from a year ago.

What could it mean for markets?

The analysis flags the core surprise as the key driver of the market reaction:

• Hotter core inflation (0.3% or higher): Such a print could lift Treasury yields and support the dollar as traders reassess the risk of further Fed tightening. The author leans toward the view that an October hike, although it may be needed, is most likely a no-go for political purposes — with Trump as president, the argument goes, the Fed will let the market do the tightening for it and remain out of the hot seat.
• Core in line at 0.2%: An in-line result could give the Fed more room to wait, particularly if the headline increase is concentrated in energy.
• Softer core inflation (0.1% or lower): A soft print could pressure yields and the dollar and provide some relief for stocks. While December may still be on the table for one more hike, the author notes that the odds of an October move are working closer toward 0% from about 20% currently.

Technical levels in focus for currency traders

For currency traders, the data is expected to provide the shove; technical levels will then help determine whether buyers or sellers can keep control after the initial move. Watch where price trades relative to the pre-release range, nearby swing levels, and the 100- and 200-hour moving averages — short-term trend gauges widely used to judge whether a post-data move has traction. A break that holds carries more weight. A break that quickly reverses signals that the market had its shot — and could not follow through.

Source: Investinglive