Is Inflation Fever Rising, Or Is It Just A 'Seasonal' Flu?

As the calendar turns to February, investors are grappling with the question of whether the recent surge in inflation is a temporary 'easonal' flu or a more persistent fever. The Consumer Price Index (CPI) rose by 0.5% in January, pushing the annual inflation rate to 3%, the highest level since March 2021. However, some economists argue that this increase may be partly due to 'esidual seasonality' in the data, which could mean that the actual underlying inflation rate is not as high as it seems.

Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics, suggests that the substantial 0.45% rise in the January core CPI was largely due to seasonal adjustment adapting too slowly for the great post-pandemic clustering of annual price rises in the first month of the year. Kathy Bostjancic, chief economist at Nationwide, also notes that the revised seasonal adjustments and relative importance weights going back five years could be exacerbating the higher print in January, and she expects to see a moderation in inflation readings going forward.

While residual seasonality may contribute to the recent inflation data, it is essential to consider other factors that could influence the trajectory of inflation in the coming months. For instance, President Donald Trump's imposition of tariffs on foreign trading partners might drive up prices for imported goods, leading to sustained inflationary pressures. Chris Clarke, an economist and professor at Washington State University, predicts that inflation will remain stubbornly above normal for a while, suggesting that the future does not bode well for lowering inflation.

In conclusion, while residual seasonality factors may play a role in the recent inflation data, other factors, such as tariffs and their impact on imported goods, could also influence the trajectory of inflation in the coming months. It is crucial to consider a combination of factors when analyzing and forecasting inflation trends. Investors should remain vigilant and prepared to adapt their portfolios as needed to mitigate the risks associated with high inflation.