by Tyler Atkinson and Ron Mau
Dallas Fed
January inflation data were stronger in 2023 and 2024 than forecasters expected, even after more encouraging results had been reported for the ends of 2022 and 2023. Rather than reflecting seasonal adjustment difficulties, this pattern may be caused by a large share of firms changing prices at the start of a new year.
If this is the case, first-quarter inflation data may exhibit greater persistence and sensitivity to swings in the business cycle. Whether early 2025 monthly inflation rates are similar to late 2024 or a repeat of the previous years’ surprises will be key to assessing the underlying momentum of inflation ahead.
Recent pattern of faster inflation early in the year
Inflation is typically measured as the change in a price index over a year. In thinking about the momentum and trajectory of inflation, it is also useful to consider how prices have changed over a shorter period, such as one month. These shorter-horizon inflation rates are seasonally adjusted (typical variation over the calendar year is removed from the series) and annualized (converted to the annual inflation rate if the increase was repeated for a full year).