MUFG’s framing underlines that energy is almost the entire story behind rising US headline inflation since the Iran conflict began, keeping crude prices tightly linked to Fed expectations. The core reading is the trigger for rates markets: an in-line 0.2% would likely keep October hike pricing subdued and leave the dollar and Treasury yields range-bound, while a repeat of August’s 0.3% would revive bets on a back-to-back move and lift the front end. Strong retail sales on Thursday would reinforce the case that the economy can absorb tighter policy. Warsh’s comments early Friday could then reset expectations either way ahead of the October 27-28 meeting.---Earlier:US CPI preview: energy set to lift inflation to 3.7%, core seen steady at 2.4%---Energy is doing the damage to the headline; the Fed’s real question this week is whether anything else is starting to burn.Summary:MUFG expects US headline inflation to rise to 3.6% in September, driven almost entirely by higher energy prices since the US-Iran conflict beganCore inflation is forecast to ease to 0.2% month on month after August’s services-driven 0.3% riseMUFG says another upside surprise in core would likely be needed to revive expectations of a back-to-back Fed hike this monthRetail sales on Thursday are expected to confirm that consumer spending grew strongly in the third quarterFed Chair Warsh speaks at the IMF Annual Meetings in Bangkok early Friday, his first public remarks since the September FOMC meetingWednesday’s US inflation report is the main economic release of the week, and MUFG says the key question is not how high headline inflation climbs but whether price pressures are beginning to spread beyond energy.The bank expects the September consumer price index to show headline inflation rising to 3.6%. It notes that the increase since the start of the US-Iran conflict has been driven almost entirely by higher energy prices, so the Federal Reserve and markets will focus on core inflation for any tentative signs of broadening. The report is due at 12:30 GMT (8:30 ET).Core inflation, which strips out food and energy, picked up to 0.3% month on month in August, led by services. MUFG expects it to ease back to 0.2% in September. The bank says another upside surprise would likely be needed to revive market expectations of a back-to-back rate hike as soon as this month, following the Fed’s increase to a 3.75% to 4.00% target range in September.Those expectations have already faded. Bets on an October move fell sharply after September payrolls showed only 29,000 jobs added, leaving a December hike as the market’s main scenario. A firm core reading would challenge that view; an in-line one would likely reinforce it.Retail sales for September, due on Thursday at 12:30 GMT (8:30 ET), are expected to confirm that consumer spending continued to grow strongly in the third quarter, a sign the economy has so far absorbed higher energy costs and tighter policy.The week ends with Fed Chair Kevin Warsh, who is scheduled to take part in a fireside chat at the IMF Annual Meetings in Bangkok at around 04:30 GMT on Friday (00:30 ET). He has not spoken publicly since the September meeting, so his remarks will be scrutinised for guidance ahead of the October 27-28 decision. Warsh has moved the Fed away from explicit forward guidance, so markets are likely to focus on his tone on inflation rather than any signal on timing. This article was written by Eamonn Sheridan at investinglive.com.