The chart on the left shows the potential pathway of U.S. year-over-year core consumer price index (CPI) inflation under various month-over-month changes in core CPI index. Based on the average month-over-month (m/m) change over the past 6 months, core CPI is expected to around 5% year-over-year by the third quarter of 2023. On the other hand, if the m/m change in core CPI were to decelerate to 0.1%, core CPI may move meaningfully towards the Federal Reserve's 2% target.
The right shows some select components of Consumer Price Index that have driven the change in inflation. Using this we can see where the major changes are coming from and whether they could be persistent long-term contributors based on what could be causing this price behavior. While the initial spike up in inflation over 2022 was driven by food and energy prices, core services and shelter prices are contributing more significantly to recent inflation figures. In addition, these core components of CPI are also proving to be more sticky than expected.