The Federal Reserve Bank of Cleveland has released a report indicating that the Federal Reserve's preferred inflation gauge, the personal consumption expenditures (PCE) price index, often experiences fluctuations throughout the year. According to the findings, PCE inflation tends to increase in January and decrease in November and December, even after seasonal adjustments.

Kurt Lunsford, the author of the report, notes that since 1987, headline PCE inflation for January averaged 0.26 percent. This figure is double the average for December at 0.13 percent and 2.6 times higher than November's average of 0.10 percent.

Lunsford points out that this "residual seasonality" also appears in four other PCE inflation measures but states that "in each case the differences are economically large and statistically significant." He explains that these patterns can create challenges in interpreting monthly inflation data accurately.

"The pattern of residual seasonality I find often gives the impression that monthly inflation rates are low at the end of the calendar year and then jump to start the year," writes Lunsford. He adds that such fluctuations can make it difficult to determine if inflation is maintaining a rate of two percent.

The Cleveland Fed's role extends beyond this analysis as it participates in shaping national monetary policy alongside other regional Reserve Banks and supports financial institutions within its jurisdiction. The bank serves Ohio, western Pennsylvania, eastern Kentucky, and northern West Virginia through various research, outreach, and educational initiatives.

Further information on this topic can be found in Lunsford's Economic Commentary titled "Residual Seasonality in Five Measures of PCE Inflation."

Chuck Soder from the Cleveland Fed provided contact details for further inquiries: chuck.soder@clev.frb.org or by phone at 216-672-2798.