What Wednesday's 3.6% CPI forecast means for a tenant with an escalator, an employer and a contractor

The September consumer price index is due Wednesday, October 14, from the Bureau of Labor Statistics. The consensus forecast on the economic calendar that feeds our calendar page is for a 0.6% rise in the month and 3.6% over twelve months, against 0.4% and 3.4% in the prior report. For core prices, which leave out food and energy, the forecast is 0.2% on the month and 2.5% on the year, against 0.3% and 2.4% before.

These are forecasts, not results, and nothing here depends on the number being hit. What matters to an owner is that the headline and core figures are expected to sit more than a full point apart. A contract that follows one costs a different amount than a contract that follows the other.

Where the gap comes from

Fuel. The Energy Information Administration's weekly retail survey shows regular gasoline at $4.071 a gallon on August 31 and $4.478 on September 21, a rise of about 10%, before easing to $4.354 on October 5. On-highway diesel went from $5.599 to $6.529 over the same three weeks, up about 17%, and was $6.199 on October 5. Energy is in the headline index and out of the core index, so a month like September pushes the two apart.

The point for a business: the headline figure is what most escalator clauses and cost-of-living formulas read. The core figure is closer to what your non-fuel suppliers are doing. Your own costs sit somewhere between them depending on how much of your budget is fuel.

Three owners, three exposures

The figures below are illustrative. Substitute your own.

The tenant with a CPI escalator: $216 a month at 3.6%

A shop paying $6,000 a month under a lease that raises rent by the year-over-year change in the all-items CPI would pay 3.6% of $6,000, or $216 more a month, $2,592 over a year. If the same lease followed a 2.5% figure it would be $150 a month, $1,800 a year. The $792 difference is the cost of which index the clause names. Look for three things: which index and which month it reads, whether the increase is capped or floored, and when it takes effect. Many escalators use a single month's reading, so one hot print can set the rent for a year.

The employer: about $14,900 to match 3.6% on eight people

Eight employees at $48,000 each is a $384,000 payroll. A raise matching 3.6% is $13,824. Add the employer share of Social Security and Medicare tax at 7.65%, $1,058, and the cost is about $14,882. A raise matching 2.5% would cost $9,600 plus $734, or about $10,334. The difference is roughly $4,550 a year. The same CPI also sets the 2027 Social Security cost-of-living adjustment; see our September math on what the raise needs this month to do. Many of your employees will be reading Wednesday's number with their own raise in mind.

The service contractor: about $5,400 to absorb if prices stay flat

Take a landscaping, cleaning or HVAC maintenance business with $250,000 in annual service contracts and a cost base of $150,000, 60% of revenue, covering labor, fuel, parts and supplies. If costs rise in line with 3.6% and contract prices do not move, that is 3.6% of $150,000, or $5,400 of margin gone, equal to 2.16% of revenue. To hold the same dollar profit the contracts need to rise about 2.2%. A fuel-heavy business, such as a lawn crew or a delivery route, will see more than 3.6% on that line; a business whose costs are mostly wages may see less. There are 44,163 landscaping businesses and 40,729 HVAC businesses on CheckThisBiz's independent file, and most of them price on annual or seasonal terms.

What to actually do

• Before Wednesday: read your documents, change nothing. Find the index named in your lease escalator, the cap and the effective date. Know what your raise budget is for next year. No decision gets better by being made before the number.
• After the print, price off your own cost lines, not the headline. Take last year's fuel, wage, and supplier totals and apply each one's change. That gives you a number that belongs to your business, such as the 2.2% above, to take into the next round of quotes.
• If you raise prices, say it once and say why. Customers accept a single clear increase tied to costs better than several small ones. Our guide on raising prices walks through the steps.
• If the print comes in below forecast, do not read it as the end of the cost pressure. One month's figure moves with gasoline, and gasoline moves with the Gulf.

Related: what 4.6% inflation expectations mean for a restaurant, a furniture store and a salon.

Sources: Bureau of Labor Statistics Consumer Price Index (release schedule); U.S. Energy Information Administration weekly retail fuel prices; Chronicle economic calendar for forecasts; business counts from CheckThisBiz. Forecasts are consensus estimates and may change. Lease, payroll and contract examples are illustrative and the arithmetic is ours. This is general information, not financial advice.