SUMMARY
- Base effects impact how an inflation print appears. For example, if the 12-months-ago print had unusually high inflation, this year’s inflation rate might seem lower, even if prices are still rising. This is because prices are being compared to already elevated levels from the previous year. In the U.S., core inflation has been above the Fed’s 2% target for over three years.
- There are still two “easy” months—September and October—to beat before it gets tough again, as November and December had particularly low prints. The red line in the chart below is what each monthly print needs to be over a 12-month period (0.15) to get core inflation back to 2%, something that has occurred only a handful of times over the past two years. The chart below illustrates that, due to base effects, the September and October core inflation prints should be relatively “easy” to beat as they are relatively high, but the November and December prints will be trickier to beat, as they are the two lowest month-over-month prints in more than two years.
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