How much residual seasonality lingers in January inflation in the US?
Start-of-the-year residual seasonality occurs because supplier and labor contracts are usually renegotiated in January, leading to an upward bias in wage and price statistics.
What you will learn:
- Residual seasonality contributes 3bps to the m/m change in the core CPI in January. This effect is even larger in the core PCE deflator, the Federal Reserve’s preferred inflation gauge.
- It adds 6bps to the m/m change in the core PCE deflator in January. This upward bias is stronger on the goods side, boosting the core goods PCE deflator by 14bps, while only providing a 5bp lift to the core services PCE deflator.
- We find more evidence of an upward bias in Q1 readings of the Employment Cost Index, our preferred measure of wage growth.

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