Sticky US supercore inflation backs up Powell's caution on wages and easing

Inflation is very much back on the Federal Reserve's radar. When the central bank left rates unchanged in late January, Governor Jerome Powell indicated that the Fed was in no rush to ease policy until there are substantial changes in labor and consumer-price trends. By contrast, just weeks ago, markets had viewed relatively benign US inflation data with a sigh of relief.

The consumer price index (CPI), personal consumption expenditure (PCE) and their less volatile core measures (which exclude food and energy) are all above the Fed's 2% target; the headline metrics have been accelerating for three months straight. Meanwhile, Donald Trump's election win and tariff threats to Canada, Mexico and China have renewed concerns that the president's trade policies will be inflationary.

To get a better understanding of US price dynamics – and especially the American labor market – we can examine another measure: "supercore" inflation, i.e. stripping out housing from core services metrics. CEIC calculated supercore inflation by stripping out two major shelter measures: rent of primary residence, and owners' equivalent rent of residence.

This narrower measure shows inflation running even hotter – reaching a 4.2% year-on-year pace in December. While that marks a slight deceleration since the spring of 2024, supercore stayed above 4% throughout the whole of last year – reaffirming the "higher for longer" narrative.

Back in 2022, Powell himself said that supercore might be the key to for future inflation expectations, given that it covers a wide range of services – from health care and education to haircuts and hospitality.

CPI data will be published on Feb. 12, while the PCE price index is due on Feb. 28. CEIC's proprietary nowcasts are generally pointing to stable price growth, except for a slight acceleration in core CPI.

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