Wells Fargo economists are anticipating another set of favorable inflation figures when the U.S. Bureau of Labor Statistics releases its September Consumer Price Index (CPI) report.
According to forward-looking commentary released this week by Wells Fargo economists Sarah House and Aubrey Woessner, the bank is projecting the headline CPI to rise 0.1% month over month. If realized, that would be down from 0.2% in August and would bring annual inflation to 2.3%, down 0.2 percentage points from August to reach another three-year low.
It would also point to the Personal Consumption Expenditures (PCE) Price Index — the Federal Reserve’s preferred inflation gauge — rising 2.0% year over year in September. That would put it squarely at the Fed’s target range at a key juncture before the policy-setting Federal Open Market Committee next meets on Nov. 7.
It’s worth noting that Wells Fargo’s promising forecast is driven by non-core deflation. The yearlong retreat in gas prices and a recent slowdown in food price growth has helped push headline inflation down, and economists at the banking giant project more of the same to be reflected in the upcoming CPI report.
Core inflation, which excludes volatile energy and food prices, looks to be a little more stubborn. Wells Fargo predicts a core monthly uptick “that teeters on the edge of a 0.2% or 3% gain,” which would largely match the 0.3% gain in August that slightly overshot consensus expectations. The bank is pinning the stronger-than-ideal gain on a (theoretically) temporary increase in core goods prices; Wells Fargo expects goods deflation to reignite as the year comes to a close.
Notably for the housing industry, House and Woessner remain bullish (in quite quippy fashion) on shelter deflation despite a disappointing reading in the last CPI returns.
“At the risk of seeming like Charlie Brown trying to kick Lucy’s football, we still see signs that primary shelter inflation will slow further, and that the nearly 6% annualized monthly rate recorded in August is not reflective of the underlying trend,” wrote the pair. “The apartment vacancy rate according to CoStar through Q2 has remained at its highest level since 2009, with apartment rent growth running below its pre-COVID pace according to a litany of measures … While low affordability in the purchase market is keeping single-family rent growth more or less in line with its 2018-2019 clip, the CPI for owners’ equivalent rent, at 5.4% year-over-year, remains roughly two percentage points higher than its pre-pandemic pace.”
Despite an upswing in core inflation in the third quarter, though, Wells Fargo sees a downward trend on the horizon, helping inflation continue to ease in the final months of 2024. A short-term headwind presents itself in the form of the dockworkers strike at East and Gulf Coast ports, though unless the unrest stretches on for long, Wells Fargo expects “minimal effects” on consumer goods prices thanks to strong retail inventories nationwide.
“We look for the 12-month change in headline CPI to remain around 2.0-2.5% over the next year, which should translate into the PCE deflator hovering right around the Fed’s 2% target,” said House and Woessner. “Excluding food and energy, price growth should continue to recede, as further services disinflation more than offsets less-dramatic goods deflation. We look for the year-over-year pace of core CPI inflation to slow to around 2.5% by the third quarter of next year.”