According to Woofun AI, on the eve of the US CPI data for September, Wall Street's forecast for overall inflation had converged, but the three major institutions, Morgan Stanley (MS.US), Nomura (NMR.US), and Citibank (C.US), showed very different logical perspectives on the composition and risk direction of core inflation.
Morgan Stanley's overall CPI forecast for September is a 0.62% month-on-month increase and a 3.69% year-on-year increase. This judgment is mainly driven by another sharp rise in gasoline prices. In terms of core CPI, Damo gave a month-on-month forecast of 0.24%, which is slightly higher than the average estimate of 0.22% in the Bloomberg survey at the time.
Although Dama's judgment still includes the expectation that core inflation will slow down from last month, it believes that the intensity of the slowdown may be limited. The more critical variable is the probability distribution in the direction of risk: Damo believes that the core CPI is likely to show 0.3%, which is higher than the probability shown as 0.1%.
This upward risk mainly comes from air ticket and hotel prices. Structurally, if these service segments are stronger than expected, they may further push up the core reading, which is already close to rounding the boundary. Therefore, the key to understanding Damo's views is to observe whether the prices of some services can offset the cooling of other segments.
If air tickets and hotels increase strongly, the core CPI may fall short of market expectations, even if the overall CPI slows down. The strengthening of a few service segments and the acceleration of widespread prices still need to be judged separately. If the data is heated, whether the driving factors are concentrated will affect the market's interpretation of the sustainability of inflation.
According to data compiled by Woofun AI, Damo's benchmark forecast is slightly off, and air ticket and hotel prices are an important risk that the core CPI will exceed expectations.
Nomura's overall CPI forecast for September is a 0.58% month-on-month increase, and the core CPI is up 0.227% month-on-month, down from 0.290% in August. Its explanation for the slowdown in core inflation is very specific: the previous boost in the price of wireless telecommunication services is weakening.
This means that the relatively high core readings for August were partly driven by the telecommunications services segment. As this effect subsides, the September reading is expected to fall back. As a result, Nomura's analysis focused on the source of monthly price fluctuations: to determine the trend of inflation, it is necessary to identify which increases are likely to continue and which are phased disturbances. Judging from the predicted values, Nomura is slightly lower than Oma and higher than Citi. All three companies expect core gains to slow down from last month, but Nomura emphasized the withdrawal of previous boosting factors. Nomura's judgment suggests that the decline in core CPI can first be driven by the subsidence of sectional disturbances, which does not necessarily mean that all price pressures weaken at the same time.
If telecommunication services cool down while housing, air tickets, or hotels are still strong, the final reading may remain around 0.2%; performance in other categories will determine whether cooling can be further expanded.
Citi's overall CPI forecast for September is a 0.62% month-on-month increase, and the core CPI rises 0.18% month-on-month, which is the lowest core forecast among the three companies. Compared to Damascus, Citi's judgment on the unexpected direction is contrary: it believes that the core CPI shows a risk of 0.1%, which is higher than the risk shown as 0.3%. There are three main factors supporting this judgment: housing inflation is still slowing down, overall service prices are rising moderately, and the transmission of energy costs to commodity prices is limited. Whether the house can continue to cool down is an important clue for testing Citi's judgment.
Airline tickets and hotels may cause monthly fluctuations, but if the housing and other service segments perform moderately, the overall increase in core CPI may still be suppressed. The transmission of energy costs determines another question: to what extent will the increase in gasoline prices extend to core commodities? Citi expects this conduction to be limited, so higher overall CPI can occur at the same time as core CPI cooling. This is reflected in the combination of predictions it gave: the overall CPI rose 0.62% month-on-month, while the core CPI rose only 0.18%. According to Citi's judgment, the increase in overall inflation driven by energy is not sufficient to indicate a renewed increase in broader price pressure.
The differences between the three agencies can be summarized in three key points of observation: the upward risk of air tickets and hotels; Nomura sees the disruption in telecommunication services subside; and Citi sees the cooling of housing and broader service prices. This also explains why a core CPI reading of 0.2% isn't necessarily enough to end the debate.
If housing slows down significantly, but air tickets and hotels are strong, the cooling factors emphasized by Citi may occur at the same time as the upward risk that Dama is worried about; if the decline in core readings mainly comes from telecommunication services, it is closer to Nomura's explanation of the subsidence of segmented disturbances, and the judgment on broader inflation trends still needs to be supported by other data. If the core CPI finally shows 0.3%, the results will be closer to the direction Damo is worried about, but whether it represents a continued increase in pressure depends on whether the increase is widespread. If it shows 0.1%, it is closer to Citi's risk judgment. It is also necessary to observe whether cooling is concentrated on a few sub-items. The core issue of this round of CPI is the upward pressure on service prices and the cooling of housing. Which side has a greater impact on the final reading. The three institutions' benchmark predictions were similar, but they gave different answers to the source and persistence of price pressure.