Small businesses on September inflation: Fuel, fuel, and more fuel

U.S. headline consumer price growth is predicted to have increased to 3.6% in September, according to estimates from alternative data provider Truflation. This marks a widening gap with the underlying inflation figure, which is forecast to be around 2.4%, according to Truflation's predictions. The difference between the expected overall and core readings suggests the significant impact of surging energy expenses, as well as potential tariffs, freight costs, and high input costs affecting consumer goods prices.

As investors prepare for the release of the official U.S. consumer price index on Wednesday, the report may provide insight into how the Federal Reserve will approach monetary policy in the remainder of the year. The Fed had previously raised interest rates by a quarter of a percentage point last month, with policymakers citing a desire to curb inflationary pressures.

While the central bank is not anticipated to raise rates again at its upcoming meeting this month, given soft employment data in September, it is widely expected to increase borrowing costs at its final gathering in December, according to CME FedWatch data. Truflation noted that the Federal Reserve faces higher supply-driven inflation alongside a weakening labor market.

While further tightening cannot directly resolve energy or import supply shocks, broader pass-through into core goods and services could justify maintaining restrictive policy. Truflation highlighted that oil supply disruptions, primarily resulting from an ongoing eight-month-long war between the U.S. and Iran, have led to a sharp increase in crude prices.

Although recent shipping data suggests that some Gulf flows are recovering, the threat of further regional conflict has kept oil prices elevated. Consequently, refined product prices, particularly diesel, have surged. This, coupled with increased spending on artificial intelligence data centers and the U.S. President's aggressive trade stance, could support further price gains in the coming months.

Truflation emphasized that while inflation is not yet broadening decisively at the consumer level, the upstream pipeline is becoming more inflationary. Energy and tariffs pose the risk of renewed goods inflation, while weaker employment and wage growth limit demand-driven pressures. The key risk, according to Truflation, is supply costs spreading into core inflation.