0.3% Core Inflation, Uncertainty Remains High
We expect the seasonally adjusted month-over-month (MoM) core CPI to print at 0.3% (31bps) in April, with headline CPI projected at 0.3% (30bps). Risks are balanced, given the uncertainty about the timing of tariffs-related effects. That said, our April MoM forecast is a few basis points lower than our estimate at the time of the March CPI, as there are conflicting signals from complementary data (i.e. Nielsen data vs. Cavallo et al. (2025)).
Taking a broader view, underlying challenges persist, even net of tariffs: the distribution of price changes within core CPI remains misaligned with the inflation target, and the presence of fat tails highlights the heightened uncertainty.
Finally, this is the first time we include Q2 insample of our medium-term “main” model. The forecast is only a touch higher (1 tenth), as our Q2 nowcast matches the model own forecast.
Implications for the Fed: to us, the Fed is “On Hold”, no matter what we get in the April CPI.
Our machine-learning model. We have not introduced our machine-learning model yet (documentation is here). However, we have been monitoring this model for months and the out-of-sample performance is accurate. For the record, the model (which includes more than 100 variables) is forecasting 28bps MoM sa for core CPI in April, with the YoY going well above 4% by early 2026. The model forecast for core CPI can be seen here.
Our forecast
We expect headline and core CPI to increase by 30 basis points and 31 basis points, respectively, in April, with non-seasonally adjusted (NSA) levels projected at 320.996 and 327.088. Based on our forecast, year-over-year (YoY) headline and core CPI are expected to print at 2.4% and 2.9%, respectively. Table 1 provides a sectoral breakdown of our seasonally adjusted MoM forecast, with core goods and core services anticipated to rise by 26 basis points and 34 basis points, respectively.
As always, we refrain from making sectoral decomposition comments, as our focus remains on the ex-post distribution of price changes. Table 2 outlines our real-time MoM forecast errors: over the past six months, our core CPI forecast—our primary focus—has been competitive, with a standard error of 4 basis points and a standard deviation of 10 basis points. That said, the mean of our forecast error is slightly above zero, indicating some (small) downside risks to our MoM projection.
Table 1. MoM sa CPI forecast – details
Table 2. Recent real-time Underlying Inflation MoM (sa) CPI forecast errors
Implications for the “main” model
A touch higher.
This is the first time we put Q2 in sample. We are working under the assumption that core PCE prices will grow at an annual rate of 3.5% in Q2. Given this nowcast, the medium-term model forecast for core PCE price inflation is just a touch higher (one tenth to rounding in each year) compared to the previous run, as the nowcast would be in line with the model own forecast for Q2. The model’s latest Q4/Q4 forecasts are as follows: 4.0% in 2025, 4.0% in 2026, and 3.2% in 2027.
Figure 1. Latest forecast of our “main” model for core PCE price inflation (YoY).
