As we approach the five-year mark of inflation running above the Federal Reserve’s 2% target, we remain concerned about the likelihood it remains stuck closer to 3% throughout 2026. The combination of a tight labor market, strong consumer spending, tariff pass through, and a lagged housing inflation measure is a recipe for sticky inflation.
Recent developments have suggested some moderation in the inflation profile—in particular—a slowdown in core services and motor vehicle prices. But we’re not convinced these deflationary trends will continue in the coming year. That said, monitoring inflation is particularly challenging right now. Data distortions and disruptions, uncertain tariff policies, and structural shifts related to demographics are adding crosscurrents in inflation’s path, and our ability to read it.
The 2025 US federal government shutdown disrupted data collection—with monthly data largely missing for October and collected over a condensed window in November. Ongoing distortions complicate high conviction interpretation of month-over-month inflation prints. Meanwhile, the Owners’ Equivalent of Rent (OER) component of the Consumer Price Index (CPI) continues to distort the picture, exerting outsized influence on the CPI basket, though its impact on the Fed’s preferred measure, core PCE, is more limited.
Click here for our full guide on how to monitor inflation data in the months ahead.