REPEAT: MNI DATA PREVIEW: Storms To Boost CPI 0.6%, Core +0.2%

Repeats Story Initially Transmitted at 19:15 GMT Oct 12/15:15 EST Oct 12

By Holly Stokes and Sara Haire

HIGHLIGHTS: 

-Headline CPI expected to climb to a 2.3% rise year over year, highest since

March. 

-Core CPI year over year seen 1.8% year over year, the first rise since January.

-Hurricanes expected to lift energy and car prices, impact on food mixed. 

-Analysts more cautious on core CPI, noting downside risks and shelter

uncertainty.

     WASHINGTON (MNI) - Analysts expect September headline CPI to climb by a

healthy 0.6% after August's 0.4% rise, while core CPI is expected to rise 0.2%

for the second straight month, the result being increases in the year/year rates

for both, analysts noted. 

     Societe Generale notes that a headline gain of 0.6% would translate to a

2.3% rise year over year - the strongest pace since March. 

     Much of CPI's anticipated rise is due to impacts from the recent string of

hurricanes. In particular, analysts are focused on Harvey and Irma's impact on

energy, food, and car prices. TD Securities looks at past hurricanes as evidence

that upward price pressure should materialize in categories outside of core CPI

- e.g. gasoline and food. But, they note that this upside risk is likely to be

concentrated in September and short-lived. 

     Gas prices are expected to lead the rise in headline CPI. Societe Generale

forecasts gas prices climbed by about 13.2% seasonally adjusted, which alone

would boost the headline figure by 0.44%. Despite the post-Katrina jump in

natural gas, analysts such as TD Securities and JP Morgan do not expect natural

gas to jump significantly - with JP Morgan actually forecasting a modest

decrease for natural gas. Analysts also note that widespread outages after Irma

may make electricity a modest drag. However, analysts still see energy posting a

healthy gain, with Morgan Stanley predicting an almost 7% rise. 

     Analysts are more mixed on their expectations for the hurricanes' impact on

food prices. Many analysts expect the food index to be little impacted. However,

TD Securities argues that since Florida is the second largest food grower in the

U.S., groceries, and produce especially, may see a price rise - stating that a

0.3% gain in food at home cannot be ruled out. BMO disagrees with this upside

risk, noting that in September grocers were practicing more aggressive price

discounting. 

     Harvey and Irma are also expected to have lifted car prices out of their

recent slump, boosting both headline and core CPI. With expectations that Harvey

damaged between 500 thousand to 1 million vehicles, analysts such as Capital

Economics and Morgan Stanley anticipate that both new and used vehicle prices

should rise due to temporarily heightened demand. JP Morgan looks to Manheim and

the National Automobile Dealers Association Price Indexes recent increases as

evidence that used car prices have increased, however JP Morgan expects new

vehicle prices to be unchanged. 

     Core CPI is expected to rise 0.2%, which as BMO notes would raise core year

over year to +1.8%, the first time it has risen since the start of the year.

This expected rise follows overestimates of core CPI for seven of the last

twelve months. While analysts point to vehicle prices as a source of strength

for core CPI, there are other positive signals that analysts noted. In

particular, analysts see potential for gains in physicians' services, apparel

prices, medical care, education, and home furnishings. 

     However, many analysts are quick to point to a downside risk for core CPI,

noting that the likely-hurricane-driven boost will have a greater effect on

headline than core. Morgan Stanley believes that outside of cars, core goods

prices may remain in deflation until a "larger and more sustained depreciation

in trade-weighted dollar," which they note is likely not to come until later in

2018. In particular, promotions for wireless carriers are expected to be a drag

on communication prices. Analysts also expect airfares to have declined due to

airport closures and disrupted demand, but note that higher jet fuel prices

could offset this drag on airfare. 

     Analysts are closely watching to see how shelter will impact core CPI. As

Societe Generale notes, 80% of August's core CPI +0.248% was driven by shelter

costs - so with expectations for softer hotel rates and rent, core CPI could be

in for a hit. JP Morgan believes that while rent will likely decelerate from

August, rent prices are sticky and thus may remain reasonably elevated. This

expectation aligns with reports made by residential leasing and property

managers interviewed in MNI's Reality Check released Thursday, in which they saw

high but leveling off rental market prices. Forecasts for hotel prices vary -

with some analysts expecting hurricane driven demand to help September continue

August's rebound, while others believing that a second strong print is unlikely.

TD Securities also argues that competition from nontraditional lodging, e.g.

Airbnb, is slowing growth for this sector.

     While CPI is not the Fed's preferred inflation indicator and there are

several more reports to come before a potential December hike, analysts expect

that a rise in headline and core CPI will help show that slow inflation was due

to transitory factors, and make the Fed more comfortable with a December hike.

However, it is important to consider that much of this boost is driven by

temporary hurricane effects - a fact the Fed will be well aware of after weeks

of discounting hurricane skewed reports. 

--MNI Washington Bureau; +1 202-371-2121; email: holly.stokes@marketnews.com

--MNI Washington Bureau; +1 212-800-8517; email: sara.haire@marketnews.com