CZECHIA: Flash Sept CPI Not Expected to Be a Significant Needle Mover for CNB
Headline inflation likely cooled to +2.3% Y/Y in September, missing the consensus/CNB forecast of +2.6%. Volatile food prices drove much of the surprise, and this print is therefore not expected to be a significant needle mover for the central bank. Most recent CNB guidance was that stable interest rates remain appropriate for now, and that all options are on the table for future meetings amid the need to keep policy restrictive.
- Goldman Sachs note that with rates hovering near what most CNB board members consider neutral, the bar for adjusting rates remains high. Although the main driver of today's downside surprise was non-core, GS nevertheless believe that today's print has reduced any prospect of a near-term hike. They maintain that the fundamentally disinflationary external factors will contribute to a decline in both headline and core inflation throughout the rest of the year and, reflecting this, Goldman expect the CNB eventually to continue its cutting cycle, with the policy rate reaching a terminal rate of 2.75% next year.
- JP Morgan believe that core CPI will likely remain at the upper end of the target band. They hold their forecast for a 2.9%oya print in core CPI, with risks skewed for a lower 2.8% reading. If the final print confirms that core CPI remains elevated and it was merely food that dragged CPI lower, JPM expect that the CNB will look through this move and focus on the stickiness in underlying inflation. They expect the board will keep the policy rate unchanged throughout this year and the next.
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LOOK AHEAD: US Macro: PPI (Wed) and CPI (Thu) Inflation
US PPI inflation is released on Wednesday before CPI inflation on Thursday, an unusual ordering that should see core PCE implications dialled in after the CPI release rather than the usual wide range waiting for specific PPI details. PPI will be watched more closely than usual this month after a far stronger than expected jump in last month’s July report fired a warning short over tariff-based cost pressures starting to feed through. That included a 0.6% M/M increase in our preferred core series of PPI ex food, energy & trade services, which strips out items such as the then booming portfolio management & investment advice category following the strength in equity markets. It's too early to gauge an accurate sense of analyst expectations for August.
CPI inflation on Thursday will then be the last major release ahead of the Sep 17 FOMC decision. Consensus looks for core CPI at 0.3% M/M after the 0.32% M/M in July, another monthly increase comfortably above a pace consistent with 2% inflation. August should in theory start to see the largest tariff impacts along with September and possibly October. Returning to July’s report, core goods inflation was softer than expected, at a still solid (by core goods standards) 0.2% M/M for a second month running but about half that of 0.4% expected by analysts. Instead, non-housing core services surprised higher. The latter was a “dangerous” development in the words of a usually dovish Chicago Fed’s Goolsbee (’25 voter), who speaking after Friday’s payrolls report is still undecided on a September cut whilst looking for August inflation data “to get more information”.
LOOK AHEAD: US Macro: Payrolls Preliminary Benchmark Revisions (Tue)
- The BLS on Tuesday will publish preliminary estimates of benchmark revisions, based off QCEW data for Q1.
- These will give an indication of the actual benchmark revisions on the Mar 2025 level of payrolls due with the Jan 2026 payrolls report released in early February.
- Bear in mind that the final benchmark estimate tends to nearly always be more negative than the preliminary figure – see historical values to the right.
- That doesn’t mean they can’t be large again after last year’s historically negative revision that lowered the level of payrolls by ~600k. Initial estimates we’ve seen look for another large downward revision, with the smallest being worth -550k but with wide ranges higher.
FED: Barclays Adds A Cut To 2025 Fed View
Barclays analysts now expect three Fed cuts in the remainder of the year, adding October to their pre-existing call for 25bp reductions in September and December. "Given the disappointing August employment report, we expect the FOMC to see more elevated downside risks to the employment side of the mandate."
- As for a 50bp September cut, "we think that the FOMC will view [that] as sending too strong a signal that labor market conditions are deteriorating. Indeed, we think that participants such as Powell understand that the slower pace of payroll employment reflects at least, in part, slower labor supply, which does not translate into increased labor market slack."
- For 2026 they continue to expect 25bp cuts in March and June to 3.00-3.25%, but "we do not think the FOMC will be able to cut rates more than twice next year, as we think that activity will show some slight acceleration, with the economy adapting to the new tariff environment and fiscal policy providing some support, and the unemployment rate will revert down amid limited increase in labor supply."
