According to Woofun AI, ahead of the release of the U.S. September CPI data, Wall Street has converged on forecasts for overall inflation, but Morgan Stanley (MS.US), Nomura (NMR.US), and Citigroup (C.US) present markedly different analytical perspectives on the composition and risk direction of core inflation.
Morgan Stanley forecasts a 0.62% month-over-month increase and a 3.69% year-over-year increase in the overall CPI for September, primarily driven by another significant rise in gasoline prices. For core CPI, Morgan Stanley’s month-over-month forecast is 0.24%, slightly above the Bloomberg survey average of 0.22% at the time.
Although Morgan Stanley’s assessment still anticipates a slowdown in core inflation compared to the previous month, it believes the degree of slowdown may be limited. The more critical variable lies in the probability distribution of risk direction: Morgan Stanley considers it more likely that core CPI will show a 0.3% increase than a 0.1% increase.
This upside risk primarily stems from airfare and hotel prices. Structurally, if these service components outperform expectations, they could push the core reading, which is already near the rounding threshold, even higher. Therefore, the key to understanding Morgan Stanley’s view is observing whether certain service prices can offset the cooling in other components.
If airfare and hotel prices rise strongly, core CPI may still fall short of market expectations, even if overall inflation slows. The strength in a few service categories and broad-based price accelerations must be evaluated separately. If the data comes in hotter than expected, whether the driving factors are concentrated will influence market perceptions of inflation persistence.
Woofun AI's compiled data shows that Morgan Stanley's baseline forecast is slightly overheated, with airfare and hotel prices representing a key upside risk to core CPI.
Nomura forecasts a 0.58% month-over-month increase in overall CPI for September and a 0.227% month-over-month increase in core CPI, below August’s 0.290%. It attributes the slowdown in core inflation specifically to the diminishing upward pressure from wireless telecommunications service prices.
This means that the relatively high core reading in August was partly driven by the telecommunications services component. As this influence fades, the September reading is expected to decline. Nomura’s analysis thus focuses on the sources of monthly price fluctuations: to assess inflation trends, it is essential to distinguish which price increases are likely to persist from those that are temporary disturbances. In terms of forecasts, Nomura’s estimate is slightly lower than Morgan Stanley’s but higher than Citigroup’s. All three expect core inflation to slow compared to the previous month, but Nomura emphasizes the withdrawal of the prior upward drivers. Nomura’s assessment suggests that the decline in core CPI may initially be driven by the fading of specific component disturbances, rather than indicating a simultaneous easing of all price pressures.
If telecommunications services cool down, but housing, airfare, or hotel prices remain strong, the final reading may still hover around 0.2%; the performance of other components will determine whether the cooling can extend further.
Citibank forecasts a 0.62% month-over-month increase in overall CPI and a 0.18% rise in core CPI, the lowest core inflation forecast among the three institutions. In contrast to Morgan Stanley, Citibank’s outlook on the direction of the surprise is opposite: it sees a higher risk of core CPI coming in at 0.1% than at 0.3%. This assessment is primarily supported by three factors: housing inflation continues to slow, overall service prices are rising modestly, and energy cost pass-through to goods remains limited. Whether housing inflation continues to cool will be a key indicator testing Citibank’s forecast.
Airfare and hotel costs may cause monthly volatility, but if housing and other services components show modest growth, overall core CPI inflation could still remain contained. The transmission of energy costs determines another issue: to what extent will gasoline price increases spill over into core goods? Citibank expects this transmission to be limited, allowing for both higher overall CPI and cooling core CPI to occur simultaneously. Its forecast combination reflects this: overall CPI rising 0.62% month-over-month, while core CPI increases only 0.18%. In Citibank’s view, energy-driven increases in overall inflation do not indicate a reacceleration of broader price pressures.
The differences among the three institutions can be summarized by three key focus areas: Morgan Stanley sees upside risks in airfare and hotel prices, Nomura observes the fading disruptions in telecommunications services, and Citibank notes cooling in housing and broader service prices. This also explains why a 0.2% core CPI reading may not be sufficient to end the debate.
If housing shows a clear slowdown but airfare and hotel prices remain strong, the cooling factors emphasized by Citigroup and the upside risks worried about by Morgan Stanley could occur simultaneously; if the decline in core readings is primarily driven by telecommunications services, it would align more closely with Nomura’s interpretation of fading item-specific disturbances, but judgments on broader inflation trends still require support from other data. If core CPI ultimately comes in at 0.3%, the result would be closer to Morgan Stanley’s concern, but whether this reflects sustained pressure growth depends on whether the increase is broad-based. If it comes in at 0.1%, it would be closer to Citigroup’s risk assessment, though it remains necessary to observe whether the cooling is concentrated in only a few categories. The central question of this CPI report is whether the upward pressure from services prices or the cooling in housing will have a greater impact on the final reading. The three institutions’ baseline forecasts are similar, yet they offer differing answers regarding the source and persistence of price pressures.