ab18 January 2024Global Research and Evidence LabUS Economic PerspectivesUS Inflation Monthly: Seasonality and shippingThree US inflation questions that have been on client minds recently1. What will be the impact of the upcoming revisions to CPI seasonal adjust factors? We estimate there will be some flattening in the downtrend in monthly core CPI changes, but much less flattening that occurred in the annual revisions last year. We estimate the large increases in March, April, and May 2023 will be revised down about 5bp each, while the smaller increases in January, July, September, and November will be revised up about 4bp each. 2. Do we expect a pickup in inflation early in the year? Price changes are usually largest early in the year and seasonal adjustment often does not fully account for that early-year strength. As a result we expect a pick up in the pace of monthly core CPI and core PCE increases for the next 2 to 3 months. However, weakening used car prices and rent increases partially offset the strength in other components, and even excluding used car and rents the uptick is projected to wane by the spring. Despite the step up in the monthly pace, 12-month inflation should continue to fall solidly.3. How will recent shipping troubles affect US inflation? At current levels the impact will likely be very small, less than 5bp.More slowing in inflation expected over the next few releases We project core PCE prices to rise 15bp in the December data released at the end of next week, with the 12-month change dropping to 2.9% (the first time below 3% since March 2021, right at the start of the inflation surge) and ¾ of the way back to the FOMC's 2.0% inflation target from a peak of 5.6% in February 2022. The 6-month annualized change in core PCE prices is projected to be below the FOMC's 2.0% inflation target for a second month in a row (at 1.8%). We currently project the headline CPI to rise 13bp in January (seasonally adjusted; 39bp not seasonally adjusted) with core CPI prices rising 22bp. Falling gasoline and used car prices are the main drivers in the slowing from the December increases. We will update these projections as additional data becomes available.A detailed forecast spreadsheet is available on our website.Core PCE inflation forecast below consensus at 1.8% for 2024We continue to expect that moderating demand, easing supply conditions, slowing rents, and a softening labor market will push down inflation over much of the next year. We project 12-month core PCE inflation to drop to 2.7% in the January data released late February, 2.6% in February, and 2.4% in March as large base effects from early last year fall out of the 12-month change.Our PCE inflation forecast for this year remains below consensus, with our core PCE inflation projection 0.5pp to 0.6pp below other consensus...
