The stubborn picture of inflation continued in January with the Consumer Price Index coming in hotter than expected. Prices rose 0.5% at the start of the year, compared to consensus expectations of a 0.3% gain. On a year-over-year basis, prices rose 3.0%—the strongest 12-month change since June.
January's unexpected strength echoes the pop in prices registered at the start of 2024 and renews questions over residual seasonality (i.e., the inability of seasonal factors to fully capture regular calendar patterns) in the data. However, looking at the year-over-year data to remove issues around seasonality also points to inflation's ongoing strength. The 12-month pace of core CPI picked up to 3.3% in January, keeping it within the 3.2%-3.3% range it has resided in since June (chart). We expect the 12-month rate of core inflation to remain stuck near this level in the coming months, with the core index rising at a loftier 3.8% annualized pace over the past three months. - Wells Fargo
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