"Although CPI remains below the FOMC's 2% target, the move back higher should be enough to convince most observers that the Q2 weakening was a temporary phenomenon and that this version of inflation should be able to move back above 2.0% during the 4th quarter," said Michael Shaoul, chairman and CEO of Marketfield Asset Management, in a note to clients.
"Our own view is that current consensus underplays the degree to which CPI has been held back by the long commodity bear market that extended well beyond energy prices," Shaoul said.
The Fed is scheduled to announce its latest decision on monetary policy next week. Most market participants do not expect a rate hike. However, the central bank is projected to announce the unwinding of its massive $4.5 trillion portfolio. The Fed accrued most of its holdings during the financial crisis.
U.S. Treasury yields have also surged this week. The benchmark 10-year yield started the week near 2.09 percent; it traded around 2.19 percent Friday.
Wall Street digested two key data sets Friday ahead of the Fed's meeting.
Retail sales for August fell 0.2 percent. Economists polled by Reuters expected a 0.1 percent gain.
"I think Hurricane Harvey had a bit of an impact on the data," said Christian Magoon, CEO of Amplify ETFs.
Meanwhile, industrial production fell nearly 1 percent last month.
Investors also looked to Asia after North Korea launched a missile that flew over Japan and landed in the Pacific Ocean. Still, world markets had a mixed reaction to the event. The European Stoxx 600 index fell 0.3 percent while the Japanese Nikkei 225 rose 0.52 percent.
"You could spin this as resiliency or complacency," said Magoon. "This market seems a bit out of touch with reality. ... The risk to the downside is not getting as much respect as the upside risk."