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Inflation Prediction as of March 2023 ---- Headline Inflation Headed to 3.3% Come Midsummer

INFLATION Forecast: The annual CPI total reported each month is a combined string of 12 months of data, think of it as being 12 dominoes, a new one comes on, and the oldest one drops off. THESE are the 2 dominoes to look to see if the CPI got better or worse. If Feb ’23 monthly rate is 0.3% it will replace the Feb 22 data point of 0.8% on 3.14.23 and the annual CPI will decrease from 6.4% to 6.1% maybe 5.9%???


It is a guesstimate that February’s monthly rate will be 0.3% when the actual is announced on 3.14.23. It could be higher or lower. As such the annual CPI for February will change accordingly. Below is a range of February monthly from 0.0% to 0.9%. The resulting annual CPI will range from 5.8% to 6.7%.


Where is the CPI headed? If the monthly CPI comes at 0.3% between Feb 23 and June ‘23, it is possible we could have an annual CPI of 3.3% by 7.12.23 when the June ‘23 CPI data is reported. How would this occur? The large monthly rates in March, May and June of 2022 will roll off as new monthly 2023 data for these months would replace them assuming the replacement monthly is 0.3%.


Will CPI improvement cause 10 Year US Treasury rates to decline? The answer is sometimes.

On 11.10.22 the Oct ‘22 annual CPI declined from 8.2% to 7.7%. The cumulative decrease in the 10-year almost reached 50bp 3 days thereafter. (see green line) Note the 30bp drop from the day BEFORE 0.

On 12.13.22 the Nov ‘22 annual CPI declined by a larger amount from 7.7% to 7.1% but after 5 days the 10-year rates were 10bp HIGHER and continued to go higher thereafter. (see red line)


2023 Economic Data Release Calendar: CPI, Employment, and Fed Meetings

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