What it measures
Inflation trend tracks the rate at which prices for goods and services rise. The Consumer Price Index (CPI) and the Personal Consumption Expenditures (PCE) price index measure how the cost of living changes over time and are key indicators that guide monetary policy and influence bond yields, equity valuations and real purchasing power.
Recent trend
After peaking near 9% in 2022, U.S. inflation has eased steadily. By late 2025 the 12‑month CPI rate cooled to around 3 percent while the Federal Reserve’s preferred PCE inflation gauge slowed to about 2.9 percent. The deceleration reflects fading supply bottlenecks, declining energy prices and softer goods demand, though services inflation and housing costs remain sticky.
Six-month outlook
Looking ahead, inflation is expected to continue decelerating as supply‑chain normalisation and slowing demand feed through. The Federal Reserve’s December 2025 projections show PCE inflation declining toward 2.4 percent in 2026 and 2.1 percent in 2027【279975775508048†L176-L185】. We anticipate the CPI rate to drift into the low‑2%s over the next six months as goods deflation offsets sticky service prices, though lingering wage pressures could slow the last leg toward the Fed’s 2 percent target.
Signal
We assign a Yellow signal. Inflation has meaningfully cooled from last year’s highs and is projected to fall into the low‑2% range, but it remains above the Federal Reserve’s 2 percent target. Sticky service prices and resilient wage growth could slow the final leg toward price stability, warranting caution despite the improving trend.
