We’re still tracking to lower inflation
Posted on January 13, 2023

The inflation data for December came out on Thursday: we continue to track to less than an annual 3% rate of inflation, and 2% is in sight. I show several graphs that help me see the trends in inflation more easily. I think the two most important measures are Core Inflation (Inflation less volatile food and energy) and Personal Consumption Expenditures (PCE); this latter one is the favored measure of the Federal Reserve.

 

 

== Three measures of inflation ==

 

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

 

Seasonally-adjusted inflation declined -0.08% for December and has totaled to less than 1.0% over the last six months: that translates to an annual rate of ~2.5%.

 

 

Core inflation excludes volatile energy and food components and was +0.30% for the month; that’s an increase from last month. (The difference from the measure above is the 4.5% decline the energy component of inflation; gasoline declined 9.4% in the month.) Inflation has totaled about 0.75% for the last three months: that translates to an annual rate of about 3%.

 

 

I show the most recent data, ending in November, for the monthly change in Personal Consumption Expenditures (PCE). This measure of inflation is one that the Federal Reserve Board favors. The data for December comes out at the end of January. The last five months add to 1% inflation. That translate to an annual inflation rate of ~2.4%.

 

  

== History of 12-month inflation ==

 

Full year inflation measured by the CPI-U shows that inflation for calendar year 2022 was 6.45%. The 12-month peak was 9.1% in June.

 

 

 

Conclusion: The rate of inflation in December was ~0.20%. The annual rate of inflation, based on past months of low inflation, is less than 3.0%. This is higher than the Federal Reserve’s target of 2% inflation, but we continue to have welcome news on inflation.