Will Inflation Continue to Fall?
link to page 2 
INSIGHTi
Will Inflation Continue to Fall?
February 7, 2023
The U.S. economy has experienced high inflation since the spring of 2021, with disagreement over how
long this trend will last. Policymakers have debated whether more contractionary fiscal and monetary
policy is needed to return to price stability or if it is unnecessary because price stability is already on track
to be restored.
Inflation has been falling recently, but the current level is still very high—inflation from 2011 to 2020
averaged 1.7%. According to the consumer price index (CPI), inflation stood at a seasonally adjusted
6.4% for the year ending in December, down from the June 2022 peak (9.0%). The question remains
whether this trend will continue.
What Do the Data Tell Us?
Twelve-month inflation rates get the most attention because monthly inflation is volatile. However,
currently those rates are not necessarily indicative of the most recent trends, because they include the very
high monthly changes in January through June 2022. Assuming those increases are not repeated in future
months, they will roll out of the 12-month rate in future months, automatically causing the 12-month
change to decline. For example, energy prices rose 11% and headline inflation rose 1.2% in a single
month in March 2022 (see Figure 1). In March 2023, those increases will fall out of the 12-month
change.
Congressional Research Service
https://crsreports.congress.gov
IN12091
CRS INSIGHT
Prepared for Members and
Committees of Congress
link to page 2
Congressional Research Service
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Figure 1. Monthly Change in CPI
2022
Source: BLS CPI.
To analyze more recent inflation trends, Figure 2 shows annualized inflation rates over the three-month,
six-month, and 12-month periods ending in December 2022 for various categories. Annualized inflation
rates will be used to calculate how much prices would change over a year if the rate of change stayed at
that pace, allowing comparisons of time periods of different length. The 12-month rate of headline
(overall) inflation (6.4%) is higher than the six-month (1.9%) and three-month (1.8%) rates, indicating an
overall downward trend, particularly in the past six months.
Figure 2. Annualized Inflation Rate by Category
Periods ending December 2022
Source: BLS CPI.
link to page 2 Congressional Research Service
3
To determine whether headline inflation will continue to slow, it can be helpful to consider its
subcomponents. Food, energy, and shelter account for about half of CPI. Some of the movement in
headline inflation in the past year can be accounted for by extreme movements in food and energy prices.
Those prices rose rapidly in the first six months of 2022 with the Russian invasion of Ukraine. Energy
prices then fell rapidly in the last six months of 2022, while food inflation moderated but remained
relatively high.
Inflationary pressures have not been limited to just food and energy prices, however. They are present
across nearly all types of goods and services. Assuming no further disruption in energy markets, low
inflation will be restored in future months only if prices of other goods and services stabilize. Here, the
data tell a mixed story. Because food and energy are notoriously volatile from month to month,
economists often look at core inflation, which excludes them. Annualized core inflation fell from 5.7%
over 12 months to 4.5% over the past six months to 3.1% rate in the three months ending in December.
However, although core inflation is lower than headline inflation over 12 months, it is higher over the past
six and three months and it has fallen less, so the 12-month change in core inflation is less likely to
benefit from high monthly values falling out in future months. The slower decline in core inflation could
indicate that inflationary pressures will persist.
Shelter (housing costs) makes up 33% of CPI. In December, the 12-month inflation in shelter (7.5%)
outpaced headline inflation for the first time in the past two years. Unlike other categories, shelter
inflation has accelerated in the past six months (8.7%). Given increases in house prices and rent prices
over the past year, and shelter’s large weight in CPI, it is possible that the shelter category will keep
headline inflation high over the coming months. However, current shelter inflation may be overstated
because of how it is calculated. Data for rent (and imputed rent for owners) is collected from the same
household only once every six months, which may allow for a lag for price increases to be incorporated
into inflation. There has been debate about whether rent increases have slowed rather than accelerated
over the past six months, causing shelter CPI to overstate current inflationary pressures. For more
information, see CRS In Focus IF12164, Housing and the Consumer Price Index.
If food, energy, and shelter are removed, the remaining portion of the CPI (comprising 53% of the total)
rose 4.4% in the past 12 months, but the three-month rate was -1%, a sign that other prices are potentially
beginning to stabilize.
Outlook
Until the last six months, food and energy price increases were concerning because they were feeding
through to the rest of the CPI, which had not happened in recent decades. If this is no longer happening, it
would be a positive sign that inflation may be back under control. Inflation less food, energy, and shelter
over the past six months is consistent with price stability. However, that measure represents only one half
of the CPI.
Although these trends are promising, it would be premature to assume that high inflation is no longer a
problem. As seen in Figure 1, inflation was still high in two of the past six months. Shelter inflation is
high and rising, although to some extent that may have methodological causes. Core is only slightly
above average in the past three months, but one should not read too much into three months of data given
the volatility in monthly price movements. Inflation would need to continue falling over the next few
months to verify that price stability has been restored. The improvement in six-month headline was partly
caused by the large decline in energy prices, which is unlikely to be repeated. Conversely, while
additional food and energy price shocks are not expected soon, if they occurred they might feed through
to core again.
Congressional Research Service
4
Author Information
Lida R. Weinstock
Marc Labonte
Analyst Macroeconomic Policy
Specialist in Macroeconomic Policy
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff
to congressional committees and Members of Congress. It operates solely at the behest of and under the direction of
Congress. Information in a CRS Report should not be relied upon for purposes other than public understanding of
information that has been provided by CRS to Members of Congress in connection with CRS’s institutional role.
CRS Reports, as a work of the United States Government, are not subject to copyright protection in the United
States. Any CRS Report may be reproduced and distributed in its entirety without permission from CRS. However,
as a CRS Report may include copyrighted images or material from a third party, you may need to obtain the
permission of the copyright holder if you wish to copy or otherwise use copyrighted material.
IN12091 · VERSION 1 · NEW
INSIGHTi
Will Inflation Continue to Fall?
February 7, 2023
The U.S. economy has experienced high inflation since the spring of 2021, with disagreement over how
long this trend will last. Policymakers have debated whether more contractionary fiscal and monetary
policy is needed to return to price stability or if it is unnecessary because price stability is already on track
to be restored.
Inflation has been falling recently, but the current level is still very high—inflation from 2011 to 2020
averaged 1.7%. According to the consumer price index (CPI), inflation stood at a seasonally adjusted
6.4% for the year ending in December, down from the June 2022 peak (9.0%). The question remains
whether this trend will continue.
What Do the Data Tell Us?
Twelve-month inflation rates get the most attention because monthly inflation is volatile. However,
currently those rates are not necessarily indicative of the most recent trends, because they include the very
high monthly changes in January through June 2022. Assuming those increases are not repeated in future
months, they will roll out of the 12-month rate in future months, automatically causing the 12-month
change to decline. For example, energy prices rose 11% and headline inflation rose 1.2% in a single
month in March 2022 (see Figure 1). In March 2023, those increases will fall out of the 12-month
change.
Congressional Research Service
https://crsreports.congress.gov
IN12091
CRS INSIGHT
Prepared for Members and
Committees of Congress
link to page 2
Congressional Research Service
2
Figure 1. Monthly Change in CPI
2022
Source: BLS CPI.
To analyze more recent inflation trends, Figure 2 shows annualized inflation rates over the three-month,
six-month, and 12-month periods ending in December 2022 for various categories. Annualized inflation
rates will be used to calculate how much prices would change over a year if the rate of change stayed at
that pace, allowing comparisons of time periods of different length. The 12-month rate of headline
(overall) inflation (6.4%) is higher than the six-month (1.9%) and three-month (1.8%) rates, indicating an
overall downward trend, particularly in the past six months.
Figure 2. Annualized Inflation Rate by Category
Periods ending December 2022
Source: BLS CPI.
link to page 2 Congressional Research Service
3
To determine whether headline inflation will continue to slow, it can be helpful to consider its
subcomponents. Food, energy, and shelter account for about half of CPI. Some of the movement in
headline inflation in the past year can be accounted for by extreme movements in food and energy prices.
Those prices rose rapidly in the first six months of 2022 with the Russian invasion of Ukraine. Energy
prices then fell rapidly in the last six months of 2022, while food inflation moderated but remained
relatively high.
Inflationary pressures have not been limited to just food and energy prices, however. They are present
across nearly all types of goods and services. Assuming no further disruption in energy markets, low
inflation will be restored in future months only if prices of other goods and services stabilize. Here, the
data tell a mixed story. Because food and energy are notoriously volatile from month to month,
economists often look at core inflation, which excludes them. Annualized core inflation fell from 5.7%
over 12 months to 4.5% over the past six months to 3.1% rate in the three months ending in December.
However, although core inflation is lower than headline inflation over 12 months, it is higher over the past
six and three months and it has fallen less, so the 12-month change in core inflation is less likely to
benefit from high monthly values falling out in future months. The slower decline in core inflation could
indicate that inflationary pressures will persist.
Shelter (housing costs) makes up 33% of CPI. In December, the 12-month inflation in shelter (7.5%)
outpaced headline inflation for the first time in the past two years. Unlike other categories, shelter
inflation has accelerated in the past six months (8.7%). Given increases in house prices and rent prices
over the past year, and shelter’s large weight in CPI, it is possible that the shelter category will keep
headline inflation high over the coming months. However, current shelter inflation may be overstated
because of how it is calculated. Data for rent (and imputed rent for owners) is collected from the same
household only once every six months, which may allow for a lag for price increases to be incorporated
into inflation. There has been debate about whether rent increases have slowed rather than accelerated
over the past six months, causing shelter CPI to overstate current inflationary pressures. For more
information, see CRS In Focus IF12164, Housing and the Consumer Price Index.
If food, energy, and shelter are removed, the remaining portion of the CPI (comprising 53% of the total)
rose 4.4% in the past 12 months, but the three-month rate was -1%, a sign that other prices are potentially
beginning to stabilize.
Outlook
Until the last six months, food and energy price increases were concerning because they were feeding
through to the rest of the CPI, which had not happened in recent decades. If this is no longer happening, it
would be a positive sign that inflation may be back under control. Inflation less food, energy, and shelter
over the past six months is consistent with price stability. However, that measure represents only one half
of the CPI.
Although these trends are promising, it would be premature to assume that high inflation is no longer a
problem. As seen in Figure 1, inflation was still high in two of the past six months. Shelter inflation is
high and rising, although to some extent that may have methodological causes. Core is only slightly
above average in the past three months, but one should not read too much into three months of data given
the volatility in monthly price movements. Inflation would need to continue falling over the next few
months to verify that price stability has been restored. The improvement in six-month headline was partly
caused by the large decline in energy prices, which is unlikely to be repeated. Conversely, while
additional food and energy price shocks are not expected soon, if they occurred they might feed through
to core again.
Congressional Research Service
4
Author Information
Lida R. Weinstock
Marc Labonte
Analyst Macroeconomic Policy
Specialist in Macroeconomic Policy
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff
to congressional committees and Members of Congress. It operates solely at the behest of and under the direction of
Congress. Information in a CRS Report should not be relied upon for purposes other than public understanding of
information that has been provided by CRS to Members of Congress in connection with CRS’s institutional role.
CRS Reports, as a work of the United States Government, are not subject to copyright protection in the United
States. Any CRS Report may be reproduced and distributed in its entirety without permission from CRS. However,
as a CRS Report may include copyrighted images or material from a third party, you may need to obtain the
permission of the copyright holder if you wish to copy or otherwise use copyrighted material.
IN12091 · VERSION 1 · NEW