Core inflation tracks to more than 3.5% inflation.
Posted on February 16, 2025

I was hoping that January 2025 inflation would be low and replace a high inflation month of January 2024: this obviously was not the case. The most-widely reported measure, seasonally-adjusted inflation, increased nearly 0.5% in January; that’s about a 6% annual rate; it was the highest monthly reading in 17 months. The inflation measure that the federal reserve relies on most is published at the end of this month; that may track to much lower than 3% rate.

 

I display a table and six graphs that I use to follow the trends in inflation.

 

 

Details:

 

The two most widely-reported measures of inflation are Seasonally-adjusted inflation and Core inflation.

 

Seasonally-adjusted inflation has increased steadily in the last seven months. This is the most widely reported measure of inflation.

 

 

Core inflation excludes volatile energy and food components. This is similar to the measure favored by the Federal Reserve. January inflation was the highest in 21 momths. The last six months run average to 3.6% annual rate.

 

 

Personal Consumption Expenditures (PCE) excluding Food and Energy is the measure of inflation that the Federal Reserve Board favors. The graph shows the data ending December. The last six aim at an annual rate of 2.3%. If January inflation is lower than inflation last January, this measure of inflation could be much closer to the Fed’s desired 2.0% rate.

 

 

== History of 12-month inflation rates ==

 

Full-year inflation measured by CPI-U shows that inflation for the last 12 months is at 3.0%. This measure of inflation has increased in each of the last five months.

 

  

== Producer’s Price Index ==

 

The change in producer prices will impact consumer inflation. PPI for January was the highest in 17 months. The prior ten months averaged below 0% annual rate

 

 

== Services ==

 

Inflation for services doubled the reading in December. The last six months average to 4.3% annual rate.

 

 

 

Conclusion: Core inflation for January soared and was the highest month since summer of 2023. Recent months point to about 3.5% annual inflation.

 

The Fed’s favored measure of inflation has been running cooler than other measures of inflation. If the January reading, due in about two weeks, runs less than the high reading of January 2024, that measure will be well below a 12-month rate of 3.0% and much closer to the 2.0% target.