Is the US suffering from seasonal inflation disorder?

Federal Reserve chair Jay Powell appeared to have two goals when giving proof to Congress final week. Avoid politics and don’t upset the president. He largely succeeded.

On the day of a poor set of US client value inflation information for January, Powell stated the Fed had made “nice progress” in getting inflation down however had not fairly met its objectives. He was fairly proper in regards to the former, with US CPI inflation down from 9 per cent in June 2022 to 2.4 per cent in September 2024, however the newest information was unhealthy.

US headline CPI inflation rose in January on a 12-month, six-month, three-month and one-month foundation and nearly all measures of core inflation have been increased in January than in December over each time interval. My favorite measure within the chart under is FT core inflation, which mixes all of the others in a statistically optimum means — this rose throughout all time durations on an annualised foundation. It’s typically hovering at an annualised fee of somewhat under 3 per cent.

One query raised by many analysts after the info launch was whether or not the Bureau of Labor Statistics was struggling to seasonally alter the info as a result of firms raised costs extra in January than they historically do within the first month of the 12 months.

The chart under exhibits the month-by-month change in US costs, with the newest information proven in pink. Over a protracted interval, they rise quickest within the first three months of the 12 months, are fairly steady in spring and summer time and go up once more within the autumn forward of value cuts in December. Seasonal adjustment smooths out this sample over a protracted interval of knowledge.

The chart exhibits, nonetheless, that January 2025’s month-to-month value rises have been sizzling on any historic foundation and remained excessive after the BLS’s newest seasonal adjustment.

With inflation having been elevated lately, this sample would possibly merely present the general degree of value rises just lately. You may eradicate a few of that noise by subtracting the typical month-to-month inflation fee of the earlier 12 months to take away common value developments. January 2025 was nonetheless a giant month for US value rises.

There does due to this fact look like some residual seasonality within the information, with firms extra prone to elevate costs in January than beforehand. The proof is stronger for headline inflation (you will have to click on on the chart) than the normal core measure, excluding meals and vitality, suggesting that it’s precisely some meals and vitality costs that are actually reset increased in January.

Is that this sample additionally repeated within the Eurozone?

Not likely. On the identical foundation as within the earlier chart, the month-to-month seasonally adjusted Eurozone core measure of inflation was inside a traditional vary in January 2025. Though the headline measure was excessive, there’s much less of a pattern in Europe for giant seasonally adjusted value rises at first of the 12 months.

What does residual seasonality imply?

Most analysts final week largely shunned excusing the poor CPI information on the idea of seasonal adjustment failures and famous there was one thing actual behind the numbers.

In any case, residual seasonality would solely imply that the January information was overstated whereas inflation in different months can be too low. As Powell famous in his press convention after the January Fed choice: “On the finish of the day, it comes all the way down to 12-month inflation as a result of that takes out the seasonality points which will exist.”

And if firms are discovering it simpler to lift costs in January than beforehand, there are three principal potential culprits.

• Company market energy enabling firms to push costs increased with no client backlash. If true, this is able to be a model of the “excessive inflation” lure that the Financial institution for Worldwide Settlements warned about in 2022 with firms and households anticipating and accepting annual value will increase. It will require aggressive financial coverage to forestall firms persevering with the observe yearly.

• Tariff forestalling with firms elevating costs in January in anticipation of tariffs being utilized later within the 12 months when their actions would entice extra scrutiny.

• “Menu prices” reflecting extra lumpy and occasional value rises to minimise the executive prices of accelerating fees regularly.

It’s onerous prematurely to tell apart between these potentialities. However I’m sceptical in regards to the scale of “menu prices”, particularly in a digital world, the place costs change quickly and printing prices are low.

As an anecdote, I’ve been photographing an area restaurant in Camden Market, London, which has lengthy supplied an all-you-can-eat buffet. Within the UK’s low inflation years earlier than 2021, it displayed the value in costly illuminated signage and charged £8.80 in September 2021.

The images under present the evolution of costs and the problem the restaurant had in updating its frontage. Final Friday, the value for a similar buffet was £14.90 — a 69 per cent enhance. Within the UK, the Office for National Statistics measures the nationwide enhance in restaurant costs over the identical interval at solely 24 per cent.

For this restaurant, the prices of adjusting signage would have been excessive, however that didn’t cease it making use of fast and frequent value rises since 2021.

Bessent’s guess bombs

It took at some point.

Final Tuesday I wrote that US Treasury secretary Scott Bessent had made a foolhardy bet in saying that President Donald Trump was not calling for the Fed to decrease charges and was, as a substitute, targeted on bringing down 10-year US authorities borrowing prices.

On his Fact Social platform, the president responded on Wednesday — you guessed it, calling for the Fed to decrease charges.

Extra pertinently, if you’re ever tempted to be the one that interprets Trump’s ideas in a fairly coherent kind, cease. Like Bessent, you can be humiliated.

What I’ve been studying and watching

• For extra on Trump’s newest “reciprocal” tariff plan that might destroy the Most Favoured Nation idea which has underpinned rules-based worldwide commerce, the FT has a great explainer and I can wholeheartedly suggest Alan Beattie’s Trade Secrets newsletter for a extra acerbic model.

• Ed Luce fears that Trump is undermining the US economy within the newest Swamp Notes publication, with some moderately sobering classes from Brexit added by me.

• Mario Draghi, former ECB president, in the meantime referred to as on Europe to free itself of the burdens holding again financial progress.

• The plight of Syrians who’re desperately short of banknotes is deepening, together with the irony that its central financial institution has to get extra printed from Russia.

A chart that issues

Gold has turn out to be the prime Trump trade, as a possible secure haven in a harmful world. Non-public buyers have sought to extract the shiny metallic from the Financial institution of England’s vaults and shift it bodily to the US forward of attainable tariffs.

Many central banks, which concern attainable monetary sanctions as utilized to Russia, are searching for to carry extra of their reserves in gold, as proven within the chart under. For an explainer, do read Andrew Whiffin’s piece on the FT’s Financial Coverage Radar.