January CPI preview: A strong, but less jarring start to 2025

Summary

Inflation's early strength in 2024 was a jarring reminder that restoring price stability would not be a quick affair. The January CPI report is likely to show that inflation remained stubbornly strong at the start of 2025. We estimate the headline index rose a "high" 0.3%, which would leave the year-over-year rate unchanged at 2.9%. The core index also looks set for a 0.3% advance that we expect to be driven by the ongoing rebound in goods prices and a pickup in non-housing services.

We expect some lingering issues around residual seasonality to buoy January's core reading, but we think this dynamic will be less pronounced than last year. Seasonal adjustment factors will be updated with the upcoming release to reflect the most recent year's price movements. The incorporation of 2024 figures should lead the seasonal factors to "expect" more strength in January and February. Meantime, the somewhat calmer price environment of the past year should lessen the need for businesses to push through big price increases at the start of the calendar year.

If realized, more moderate price increases at the start of this year would unlock favorable base effects and lead to a slowing in the year-over-year rate of inflation in Q1. Yet, we expect the 12-month rate of inflation to move sideways through the remainder of the year, as further services disinflation is offset by higher goods inflation now that additional tariffs are in the works.

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