Our forecasts for the September CPI report suggest core price inflation stayed largely unchanged vs last month's 0.28% m/m gain. Indeed, we expect the series to print another “soft” 0.3% m/m increase. We also look for a 0.3% gain for the headline, as retail gasoline prices eased post August surge.

Importantly, the report is likely to show that the core goods segment stayed modestly deflationary, while shelter-price gains probably slowed. Note that our unrounded core CPI inflation forecast is 0.26%, so we see a clear bias for a downside surprise to 0.2% m/m.

We now look for headline CPI to slow to 3.2% y/y in 23Q4, after closing 2022 at a booming 7.1% y/y pace. For core CPI, we also project deceleration to a still strong 3.9% y/y in 23Q4 from 6.0% in 22Q4.

... real rates look attractive given positive carry and a risk to higher oil prices in the near-term. However, near-term geopolitical uncertainty and the potential for real rates to keep rising is likely keeping dip buyers away.