US inflation accelerates again: opportunities and constraints after the stock market correction

Inflation accelerated in September: which price increases may persist?

Nomura noted that core CPI rose 0.335% month over month in September, above August’s 0.29%; core goods rose 0.25%, the most since January 2025. Owners’ equivalent rent also accelerated from the previous month, indicating a broader rise in prices.
Nomura believes some of the increases may reverse: wholesale motor vehicle prices are still falling, and rent increases in September were concentrated mainly in the Midwest. But toy prices are also supported by higher prices for imported goods such as game consoles, making the extent of any pullback uncertain.
JPMorgan noted that PPI rose 1.3% month over month in September, compared with 0.5% previously; core PPI rose 0.7%, compared with 0.2% previously. Pressure came mainly from trade, transportation and warehousing services, and was related to diesel prices passing through to production.
JPMorgan believes prices for other services and intermediate goods have not risen broadly and significantly, and that future inflation in final goods remains manageable. Morgan Stanley, meanwhile, emphasizes that persistently high oil prices could push up core goods inflation through transportation costs.

Goldman Sachs expects the contribution of AI-related price pressures to year-over-year core PCE inflation to rise from about 0.45 percentage points at the time to 0.50 percentage points by the end of 2026, before falling to 0.10 percentage points by the end of 2027 as increases in memory and computer prices slow.
The bank also believes that a lack of quality adjustments to computer hardware and software prices and an excessive PCE weighting cause core PCE to be overstated by about 0.20 percentage points. Both statistical issues remain after the data source was adjusted on 30 September.

Bank of America’s internal data show that wage growth for middle- and lower-income groups outpaced that for higher-income groups in August; labor demand in industries including construction, business services, and warehousing and transportation has also supported lower-income workers’ incomes this year.
Spending pressures remain: in August, lower-income households’ spending on necessities rose relative to that of middle-income households, but discretionary spending was also recovering. Bank of America charts also show that household debt payments as a share of income rose in 2025 compared with 2022, while younger and lower-income groups led the rise in newly serious credit card delinquencies.

JPMorgan believes leveraged money participated significantly in the September rally. After funding costs rose, these volatility-sensitive investors closed positions, accelerating the recent correction. Morgan Stanley observed that dealer funding costs subsequently fell and concluded that leveraged investors had closed their positions and exited.
Morgan Stanley remains bullish on US stocks, noting that individual stocks have corrected much more than the index. If earnings continue to grow steadily, current valuations are attractive for high-quality companies. The bank says the S&P 500’s valuation of 19.2 times already fully prices in a scenario in which the 10-year US Treasury yield exceeds 5%.
A UBS chart shows that the current consensus forecast for year-over-year growth in third-quarter earnings per share for the S&P 500 is 26.3%, with final reported growth expected to reach 29.8%.

JPMorgan noted that part of the recent decline in US Treasury yields came from safe-haven demand triggered by the stock market correction; markets are also watching whether the US Treasury’s refinancing meeting on 4 November will reduce long-term debt issuance.
The bank believes similar moves in the UK and Japan briefly lowered long-end yields before they rebounded, and that US economic fundamentals remain a determinant of yields.
Morgan Stanley noted that stocks and bonds are more likely to fall together in a high-inflation environment: the recent rise in US Treasury yields coincided with a decline in US stocks, tightening financial conditions. Even if the absolute level of interest rates does not necessarily suppress earnings, a rapid rise in yields can still increase stock market volatility and depress valuations.