PCE inflation often runs hot in January and cool in November and December – despite seasonal adjustments
The Federal Reserve’s preferred inflation gauge often runs hot in January and cool in November and December – even after seasonal adjustments, according to a new Cleveland Fed report.
The findings could complicate efforts to interpret monthly inflation data calculated from the personal consumption expenditures (PCE) price index.
Since 1987, headline PCE inflation for January was 0.26 percent, on average. That’s double the 0.13 percent December average and 2.6 times higher than the 0.10 percent average for November.
This “residual seasonality” also shows up to a lesser extent in four other PCE inflation measures. But in each case the differences are “economically large and statistically significant,” according to Kurt Lunsford, author of the report.
“The pattern of residual seasonality I find often gives the impression that monthly inflation rates are low at the end of the calendar year and then jump to start the year, and these fluctuations can make it hard to know if inflation is running at 2 percent,” Lunsford writes.
Read the Economic Commentary: Residual Seasonality in Five Measures of PCE Inflation
Further reading: CPI and PCE inflation: What’s the difference?
Federal Reserve Bank of Cleveland
The Federal Reserve Bank of Cleveland is one of 12 regional Reserve Banks that along with the Board of Governors in Washington DC comprise the Federal Reserve System. Part of the US central bank, the Cleveland Fed participates in the formulation of our nation’s monetary policy, supervises banking organizations, provides payment and other services to financial institutions and to the US Treasury, and performs many activities that support Federal Reserve operations System-wide. In addition, the Bank supports the well-being of communities across the Fourth Federal Reserve District through a wide array of research, outreach, and educational activities.
The Cleveland Fed, with branches in Cincinnati and Pittsburgh, serves an area that comprises Ohio, western Pennsylvania, eastern Kentucky, and the northern panhandle of West Virginia.
Media contact
Chuck Soder, chuck.soder@clev.frb.org, 216.672.2798
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The Federal Reserve Bank of Cleveland (commonly known as the Cleveland Fed) is part of the Federal Reserve System, the central bank of the United States.