Year-over-Year Inflation (CPI)

Think of it this way

It is like comparing this month's supermarket receipt with the one from the same month last year. If it comes out 3% more expensive, that is inflation. And even if next month that percentage falls to 2%, the receipt is still more expensive than last year: what falls is the pace of the increase, not the price.

What is Year-over-Year Inflation (CPI)?

How much prices have risen compared with the same month last year. It is the figure announced when people say “inflation in the United States is 3%”. It is calculated on the index WITHOUT seasonal adjustment, which is the official convention: when comparing July with July, the calendar effect cancels itself out and does not need correcting.

How to read Year-over-Year Inflation (CPI)

Two monthly lines in percent: headline and core, which is the same measure without energy or food. The gap between the two is exactly what those two components contribute. When headline is above, the pressure comes from gasoline and the supermarket and usually corrects on its own; when core is above, it is in rents and services, and that takes quarters to ease. The reference is 2%, the Fed's stated target: above it there is pressure to keep interest rates high; below it there is room to cut them. Beware of the most common trap with this series: a decline does NOT mean prices are falling; it means they are rising more slowly. To see whether something actually fell, you have to look at the index level, which is in this same section. Lag: none; here inflation is the consequence, not the cause.

What Year-over-Year Inflation (CPI) means for the market

It is the brake for the whole section. Every liquidity series here measures the accelerator; this one measures when the driver has to lift their foot. As long as it is clearly above 2%, the Fed is not free to inject even if the market asks for it, and that constrains all risk assets at once.

Where the money flows

It is not money moving but the consequence of too much of it moving. The full path is this: the Fed creates reserves, banks lend, households and businesses spend, and that extra demand competes for the same quantity of goods until prices give way. Example: the stimulus checks and bond purchases of 2020 and 2021 showed up in this line in 2022, a year and a half later.

What to watch in Year-over-Year Inflation (CPI)

The 2% is the Fed's target, which it measures with PCE: above it, interest rates stay high. Also watch the distance from core. If headline falls but core does not, the decline comes from energy and can reverse as soon as oil rebounds. And bear in mind that October 2025 does not exist in the series: no prices were collected that month, so there is a real gap that we do not fill in.

The figure that makes the headlines. It is the one that decides whether the Fed can cut rates.