Year-Over-Year CPI Inflation Will Worsen For At Least Three Months

This is an easy forecast. And it does not even include gasoline prices.

CPI Year-Over-Year Percent Change

CPI Year-Over-Year Percent Change Details

• All Items: 2.4 percent

• All Items Excluding Food and Energy: 2.5 percent

• Food and Beverage: 3.0 percent

• Shelter: 3.0 percent

• Medical Care Services: 4.1 percent

• Utilities and Fuel: 5.6 percent

• Energy: -0.5 percent

Those year-over-year headline numbers matched the Bloomberg Econoday estimates.

The good news ends there.

Q: Why?
A: Month-over-month comparisons are about to get difficult to extremely difficult.

Q: Please explain.
A: Year-over-year changes depend on how easy or hard the comparisons are vs a year ago. The following chart will show what I mean.

CPI and Core CPI Month-Over-Month

CPI Month-Over-Month Percent Change

CPI Month-Over-Month Pertinent Details

• 2025-03: CPI +0.03%, Core CPI +0.07%

• 2025-04: CPI +0.16%, Core CPI +0.24%

• 2025-04: CPI +0.19%, Core CPI +0.13%

Next month is particularly brutal. Unless the month-over-month CPI is essentially flat or better in March, the year-over-year CPI will rise.

If the month-over-month rises by 0.4 percent next month, the year-over-year CPI may jump as high as 2.8 percent from 2.4 percent.

April is another bad month. I suspect we are looking at year-over-year CPI of 3.0 percent or so by April.

This forecast is technical. It’s before factoring in energy prices, or other Iran war-related items, especially gasoline.

And please note Medical Care Services. It’s going to rocket Personal Consumption Expenditures (PCE) inflation. The PCE is the Fed’s preferred measure of inflation.

Some are just catching on to this.

Greg Ip says “Inflation keeps getting better based on CPI, but worse based on PCE.”

For starters, the idea that CPI inflation keeps getting better is about to crash on the hard rocks of reality.

As for the divergence, please consider what I said would happen on January 21, 2026.

Expect a Big Divergence This Year Between CPI and PCE Inflation

Rent and Healthcare go different ways in 2026. Plus there are huge timing issues.

That was an easy call, but it’s one I am not sure anyone else made.

I did a follow-up on February 2, 2026: The Fed Has Two Huge Problems Starting Now, Acyclical Inflation and Jobs

The Fed is not in a good spot.

I still do not see anyone else forecasting a huge jump in PCE inflation later this month (for January).

Perhaps I am crazy, but I expect a huge jump in medical care services in the PCE for January, well beyond what the CPI did today.

Regardless, we the expected divergence between the CPI and PCE did develop.

For more discussion of the month-over-month CPI numbers, please see CPI Rises the Expected 0.3 Percent in February, Details Very Unsettling

A jump in energy and medical care offset the more modest rise in shelter.

Expect things to get worse, much worse.

At the same time, I expect the overall economy to weaken further. For discussion, please see Expect a Negative Revision to 2025 Q4 GDP. Two Reasons

A recent construction report revision suggests a negative revision to GDP.

Finally, please note Nonfarm Payrolls Decline by 92,000 in February, Household Data Is Garbage

Stagflation is back in play.