Here are the levels of headline and core CPI, versus nowcasts and projections.
Figure 2: Core CPI level, 1982-84=100 (black), Cleveland Fed nowcast since 1/11/2023 (pink square), high and low projections (gray +). Source: BLS through FRED, Cleveland Fed, Bloomberg (1/11/23), authors calculations.
What does this mean for core inflation? In Figure 3 I plot the actual and implied inflation rates.
Chained CPI seasonally adjusted using geometric Census X13 (brown). NBER defined recession dates (peak-to-trough) shaded gray. Source: BLS, BEA, NBER, and authors calculations.
Figure 1: CPI level, 1982-84=100 (black), Cleveland Fed nowcast as of 1/11/2023 (pink square), low and high forecasts (gray +). Source: BLS via FRED, Cleveland Fed, Bloomberg (1/11/23), authors computations.
Chained CPI seasonally changed using geometric Census X13 (brown). Source: BLS, BEA, NBER, and authors computations.
This development appears to support the concept of a switch in the inflation routine (see this post). M/m CPI inflation rose, the Cleveland Feds nowcast for core PCE in December was little bit altered in reaction to the CPI release, and now stands at 0.32 ppts m/m.
Figure 3: Quarter-on-quarter core CPI inflation rate, annualized (black), Cleveland Fed nowcast since 1/11/2023 (pink square), low and high forecasts (gray +). Source: BLS via FRED, Cleveland Fed, Bloomberg (1/11/23), authors calculations.
Real q/q core inflation undershot the Cleveland Feds nowcast. In Figure 4, I show CPI vs. PCE q/q core inflation.
