We have a new year, a new Congress, and by the time you read this, we will officially have a new president. And, like many Americans, I feel a heightened sense of anticipation and eagerness to roll up my sleeves and get started.
Why then am I choosing to write my first column for 2025 about inflation? Surely, this must be an old story by now. I am tired of writing about it, and you are undoubtedly tired of reading about it. Hasn't the Federal Reserve already started to lower its interest rates? And hasn't the "soft landing" already been proclaimed? Isn't it time to dig up and discuss a more interesting economic trend?
As I have often reiterated, I do not make the trends; I just identify and analyze them. So far this year, price increases are the predominant economic story. The markets are already starting to reflect this, and I am sure the Fed is also paying close attention to this trend. This is a story that just will not end despite our wishes to the contrary. Allow me to explain, for yet another time, what I see in the most recent data on inflation.
The Bureau of Labor Statistics recently released the data for the Consumer Price Index for December 2024. The overall CPI last month was up 0.4 percent when compared with the November figure. For 2024 as a whole, the CPI for all items increased 2.9 percent.
So right off the bat, we know that an increase of 2.9 percent in the year-over-year total is still above the Fed's target of "consistently in the range of 2 percent." But what is more alarming to me is the rate of change in the monthly numbers accelerated every month in the fourth quarter. The seasonally adjusted monthly change in the overall CPI increased 0.2 percent in October, rose 0.3 percent in November and escalated 0.4 percent in December. In other words, as the Fed was lowering the Fed Funds Rate during the last three months of last year, the pace of overall price increases in the U.S., according to the CPI, was accelerating.
On the table, I have included some of the subcategories that experienced stronger-than-desired price increases in the fourth quarter. For your reference, a persistent average gain above 0.2 percent per month is going to keep the trend above the Fed's long-term target. All of these important categories registered gains above an average of 0.2 percent per month in Q4. Energy prices are particularly concerning.
Unfortunately, the Q4 CPI data is not where the story ends. The official version of the CPI for January 2025 will not be released until the middle of February, but we do have some January data for many commodities. I will not read too much into the data, because the short-term trends can be volatile, and it takes more than just a couple of weeks to establish longer-term trends.