I wrote yesterday about the big seasonal adjustments in the January CPI report. Today, Nick Timiraos at the WSJ expands on the same theme, noting that the January report is particularly impactful because of price resets at the turn of the year and that we've had particularly-large jumps in January in the past three years.
What's interesting about that is that seasonal adjustment is always a backwards-looking exercise and with those three years now in the data set, the pendulum could swing in the other direction.
In any case, Q1 is critical as the WSJ quotes Alan Detmeister, who used to run the price and wages forecasting division at the Fed.
Before adjusting for seasonal patterns, around half of all price increases take effect during the first quarter of the year, said Detmeister. “Because that’s where most of the price changes are occurring, that’s where your biggest forecast misses—the biggest surprises—are going to be,” he said.
For a detailed forecast of what to expect, here is Bank of America's forecast, which sees core up 0.33% m/m unrounded and headline CPI up 0.27% unrounded.
CPI seasonal factors will be revised with the January release. Based on historical data, we think these revisions will be modest.The report is due at 8:30 am ET on Wednesday.
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