Inflation: From Pitbull To Poodle?

Inflation continues to moderate. In early 2022, we predicted that the headline PCED inflation rate would decline from 6%-7% during H1-2022 to 4%-5% during H2-2022 to 3%-4% in 2023. So far, so good (chart). It fell from a peak of 7% during June of last year to 5% by the end of the year.

We like to compare the y/y inflation rate to the three-month annualized rate to see whether inflationary pressures are rising or falling in the short run. Over the three-months through December, the headline PCED inflation rate was 2.1% versus 5.0% y/y, while the core rate was up 2.9% versus 4.4% (chart).