The government is belatedly releasing inflation data on Friday. Here's what economists are expecting.

Economists anticipate the delayed September CPI report will reveal a 3.1% annual increase, marking the fastest inflation rate in 16 months and further distancing from the Federal Reserve's 2% target. This acceleration is partly attributed to Trump-era tariffs, with companies passing on significant costs to consumers, according to Goldman Sachs analysis. While the Fed and many economists project inflation to ease next year, Principal Asset Management warns that initial tariff impact mitigation strategies, like inventory expansion, are unsustainable, posing upside risks if pricing pressures extend to services, potentially indicating a more persistent inflationary trend.

Analysis

The delayed September Consumer Price Index (CPI) report is anticipated to show a 3.1% annual increase, marking the fastest inflation rate in 16 months, according to economists polled by FactSet. This projection, if realized, would place inflation further above the Federal Reserve's 2% target, signifying persistent price pressures in the U.S. economy. The report's release, delayed by a government shutdown, is crucial for determining the Social Security Administration's cost-of-living adjustment.

A significant driver of this renewed acceleration is attributed to Trump-era tariffs, with a Goldman Sachs analysis indicating companies pass on up to 55% of these import taxes to consumers. While initial corporate strategies like inventory expansion and margin absorption have somewhat blunted the impact, Principal Asset Management warns these are unsustainable. This suggests increasing upside risks if pricing pressures extend beyond goods into services, potentially signaling a more entrenched inflationary trend.

Despite the Federal Reserve and most private economists forecasting an easing of inflation next year, with the Fed projecting Personal Consumption Expenditures (PCE) to drop to 2.6% in 2026, the current consumer sentiment remains negative. A CBS News poll shows 59% of respondents believe the economy is worsening, reflecting the impact of recent price increases on household budgets. This divergence highlights a potential disconnect between official forecasts and immediate consumer experience.

Key Decisions for Investors

• Investors should closely monitor the September CPI report for confirmation of accelerating inflation, as sustained price pressures could influence the Federal Reserve's monetary policy stance and interest rate trajectory.
• Evaluate portfolio exposure to sectors with high import reliance or those sensitive to consumer discretionary spending, given the potential for continued tariff pass-through and negative consumer sentiment.
• Consider hedging strategies against persistent inflation, particularly if pricing pressures broaden into services, which could signal a more entrenched inflationary environment than current Fed projections suggest.