Why the stakes for the September inflation report have risen after a blowout jobs number

• A blockbuster jobs report shows the economy is hot and puts the spotlight back on inflation, analysts say.
• An upside surprise to September CPI would stoke fresh volatility, BofA said this week.
• It could also cause the Fed to reconsider the pace of monetary policy easing.

The September inflation report was supposed to be somewhat of a non-event — at least until last week's stunningly strong September nonfarm payroll report.

Now, Wall Street is bracing for a potential bout of volatility if the consumer price index comes in hot following the addition of 254,000 jobs last month, pointing to an economy that's still flying high.

The fear is that a hot inflation report on the heels of a big jobs number would further recalibrate the expectations for rate cuts, with the Federal Reserve pumping the brakes on monetary easing while the economy is strong.

The odds of a 50 basis point rate cut fell to zero after last Friday's jobs report, and the CME FedWatch Tool shows investors believe there's at least a small chance — about 20% — that interest rates will remain unchanged at next month's Fed meeting.

Economists forecast the CPI report will show inflation continued to cool last month, rising 2.3% year-over-year compared to 2.5% in August. They expect the core CPI reading, which excludes food and energy costs, to come in at 0.2%, down from August's unexpected rise to 0.3%.

However, there's always the possibility of an upside surprise.

Bank of America analysts say an unexpected jump in CPI is likely to usher in a wave of market volatility. They say the release on Thrusday is "no longer a 'non-event.'"

"Following the blowout jobs report last Friday, we believe the importance of CPI this week has risen," the analysts said in a note. "A sizable surprise could bring uncertainty on the easing cycle and more volatility into the market."

They note that options are pricing in a 1.09% move in the S&P 500 on Thursday when CPI is released. That would surpass the three-month average of a 0.7% move on the day of a CPI release, and a move of that size would be the largest swing tied to a CPI report since May.

Economists from UBS, meanwhile, say inflation is still a concern, and that if CPI surprises to the upside, the Fed could be forced to turn its attention back toward pricing pressures in the economy.

"CPI for September will be a key data release. If prices rise faster than expected on top of the stronger labor data, chances for the Fed to skip the November meeting will increase," UBS economist Brian Rose said in a Friday note.

Analysts from JPMorgan say that it's unlikely the Fed hits pause on its easing cycle unless a firm inflation reading is combined with another very strong jobs report.

But with just one more inflation report before the next Fed meeting, it's unlikely the central bank would put so much weight to one data point, they say.

"There is only one more set of inflation reports between now and then, and even a firm upside surprise could be discounted as normal monthly volatility on the path back toward the 2% target," the analysts said in a Friday note.

Bank of America analysts reiterated that point, noting that the Fed hasn't stopped easing after a 50 basis point cut since 2002.

"Even after the strong payrolls report, Fed speakers still indicate a bias for additional cuts, and it would be very unlikely in our view for the Fed to adjust the direction of policy from one month's data," the analysts said in a Wednesday note.