U.S. Inflation Chugs Along. But Watch Out for Goods.
The January pop in the CPI was comparable to what happened last year, although some of the underlying services numbers are more encouraging. But goods disinflation looks fragile.
The U.S. Consumer Price Index (CPI) was 0.47% higher in January 2025 than in December 2024 on a seasonally-adjusted basis. That is the biggest one-month change since August 2023, corresponding to an annualized growth rate of almost 6%. Nor is this purely about a single month’s unpleasant result: the three-month change since October 2024 was the largest since August-November 2022.
Nevertheless, there are reasons to think that the situation is less bad than it appears on the surface. Just as in 2024, which also featured an unusually large inflation pop in the first months of the year, the likelier outcome is that some businesses have front-loaded their annual price increases in ways that are not fully offset by the seasonal-adjustment algorithm.1 Underlying inflation has probably not accelerated, but nor has it decelerated.
As I noted previously, the underlying trends in spending and wage income suggest that nominal growth have held steady, which would make it hard for price growth to slow much. While job churn has normalized, which has limited the gains for workers switching jobs relative to those who stay in their roles, pay gains for workers who stay in their jobs are still persistently faster than before the pandemic. Until that changes, it seems unlikely that the last 1 percentage point or so of extra inflation relative to 2017-2019 will go away.
That said, there are a few interesting nuggets in the latest batch of data, particularly the apparent divergence between goods and services pricing.
The January Jolt in Context
The latest price increases do not look that out of line compared to last year or to January 2023, especially after stripping out some of the more volatile or idiosyncratic components.