United States: Core CPI trend seen moderating – TD Securities | FXStreet
TD Securities expects US core inflation to cool modestly in September, with the firm forecasting a 0.20% month-on-month rise in Core CPI. According to the bank’s US economics team, the slowdown should be driven mainly by softer readings in core services and the closely watched supercore measure, even as some categories such as goods and shelter show a mild rebound.
The call suggests that inflation is still easing, but not fast enough to fully remove concerns at the Federal Reserve. TD Securities believes the annual Core CPI rate will likely hold around 2.4%, indicating limited improvement on a year-over-year basis.
What TD Securities expects from September CPI
The bank says the main point of moderation should come from supercore inflation, which it sees slowing to 0.24% month-on-month after a stronger August reading. Supercore typically strips out housing from core services and is often viewed as a cleaner gauge of underlying inflation pressure in labor-intensive parts of the economy.
At the same time, core goods inflation is expected to tick slightly higher, helped by firmer vehicle prices. Shelter inflation is also projected to rebound a bit after what TD describes as a weak August print.
Put together, this leaves a mixed picture: improving services inflation, but enough firmness in goods and housing to keep overall progress gradual rather than dramatic.
Services inflation remains a key watchpoint
TD Securities forecasts core services inflation at 0.22% month-on-month, a touch lower than before, largely because of softer supercore dynamics. However, the bank does not expect an across-the-board slowdown.
Some discretionary services categories could still show notable strength. In particular, TD points to expected gains of 1.4% in lodging and 2.1% in airfares. Those increases may prevent the overall services picture from looking as soft as the headline monthly core number suggests.
For markets and policymakers, that matters. Services inflation has been one of the stickiest components in the broader inflation story, and continued strength there would reinforce the idea that price pressures are cooling only gradually.
Implications for Core PCE and the Fed
TD’s CPI outlook would translate into an estimated 0.23% monthly increase in core PCE, the inflation gauge the Federal Reserve prefers most. That would be only a slight step down from August’s 0.25% rise.
Even so, TD does not believe the September inflation report will dramatically alter the Fed’s broader policy path. The firm argues that the central bank has already moved toward a more gradual approach, and a modestly softer print is unlikely to force a major rethink.
Still, the message is not entirely dovish. Core services inflation would remain relatively elevated even after slowing from August, which means Fed officials may continue to see inflation risks as unresolved rather than defeated.
Where the upside risks are
While TD’s baseline forecast is for moderation, it also highlights several upside risks. One is discretionary services, where categories tied to travel and consumer spending can stay volatile and stronger than expected. Another is AI-related goods, a theme that reflects ongoing demand for technology hardware and related products linked to the artificial intelligence boom.
That tech angle is especially notable. If AI-driven demand continues to support pricing in select goods categories, it could become a small but important source of inflation persistence, particularly in areas tied to computing equipment, electronics, and supply chain-sensitive components.
Longer-term inflation outlook
Looking beyond the next report, TD Securities expects core inflation to finish 2026 at 2.7% year-on-year after bottoming at 2.4%. The bank also sees headline inflation rising gradually to 3.9% by the end of 2026, after peaking at 4.2% in May.
However, that headline path comes with a major caveat: much depends on geopolitical developments, especially the outcome of the Middle East conflict. Energy prices and other spillover effects could heavily influence the trajectory of headline inflation.
TD’s broader view is that more meaningful inflation improvement should resume by the middle of 2027.
Bottom line
TD Securities is looking for a softer September Core CPI report in the US, with the monthly pace easing to 0.20%. The expected slowdown is centered on supercore and services, while goods and shelter may show some renewed firmness. For the Fed, that likely means more of the same: progress on inflation, but not enough to fully ease concern over sticky underlying price pressures.
