2024 US CPI Forecast: Interpreting Inflation Trends and Investment Opportunities from Fundamentals

Why is the US CPI forecast so critical?

The US Consumer Price Index (CPI) is far from a cold, statistical number; it directly influences global asset pricing. CPI data is released earlier than the PCE (Personal Consumption Expenditures Price Index), which is the Federal Reserve’s core reference for monetary policy. The Fed’s policy decisions ultimately transmit to various markets such as stocks, forex, and crypto assets. Therefore, accurately predicting the US CPI is vital for investment decisions.

The three main drivers of the 2024 US CPI forecast

Factor 1: Policy uncertainty during the US election year

The 2024 US presidential election results will be announced in November. Regardless of which party takes power, they face the challenge of sluggishly easing domestic inflation pressures. Candidates tend to promise aggressive policies to win votes, which could escalate geopolitical conflicts, reshape global supply chains, and ultimately push prices higher. The US CPI forecast should consider this political risk.

Factor 2: The game over the Fed’s rate cut pace

According to CME Fed Funds futures pricing, the market expects the highest probability that the Fed will cut rates by 6 basis points (each basis point = 0.25%) in 2024. This expectation reflects market belief that the US CPI will trend downward throughout the year. However, if rate cuts are slower than expected, asset prices could be impacted.

Factor 3: Rising global logistics costs pressure

The Red Sea crisis continues to threaten maritime safety, with Asia-Europe shipping rates doubling since December 2023. Increased logistics costs will eventually be passed on to consumers, making this a variable that cannot be ignored in the 2024 US CPI forecast.

Key indicators for decoding the US CPI forecast

Differences among the three major indicators and their market implications

US CPI vs Core CPI:
CPI includes all price fluctuations in food and energy, which are heavily impacted by oil and grain prices; core CPI excludes these two, providing a more accurate reflection of persistent inflation trends. Investors should monitor both.

US CPI vs PCE:
CPI uses a Laspeyres weighting, while PCE employs a chain-weighted approach. PCE reacts more sensitively to substitution effects (consumers switch to alternatives when prices rise), which is why PCE is considered a more scientific inflation indicator.

Monthly growth rate vs annual growth rate:
Monthly changes are more volatile and susceptible to seasonal factors; annual growth compares to the same period last year, better reflecting true inflation trends. The US CPI forecast should focus on the annual rate.

Market focus:
Investors primarily watch the earliest released US CPI annual growth rate (market reacts quickly), while the Fed emphasizes the US PCE annual rate (for decision-making). The trends of both are usually aligned and similar in magnitude.

Breakdown of the US CPI forecast components

The weight distribution of US CPI determines which sectors’ trends are most closely watched:

• Housing rent (30-40%):
  Largest weight, directly reflects living costs

• Food and beverages (13-15%):
  Essential for daily life, fluctuations immediately impact inflation data

• Medical care (7-9%):
  Long-term structural upward trend

• Education and communication (6-7%):
  Service prices tend to be more resistant to decline

• Energy (6-8%):
  Highly volatile, often causing short-term surprises or shocks

• Transportation services (5-6%), new and used cars (5-8%), leisure & entertainment (3-5%), apparel (2-3%)

Housing and food account for over 50%, making them key entry points for analyzing the US CPI forecast.

2024 US CPI forecast trend analysis

Macroeconomic tone: Sticky inflation amid moderate growth

The International Monetary Fund (IMF) forecasts US GDP growth of 2.1% in 2024, ranking second among major economies worldwide. Moderate economic momentum suggests inflation will be difficult to fall sharply—an important backdrop for the US CPI forecast.

Quarterly forecast framework

Q1: Bottoming out confirmed
Commodity prices, especially crude oil, continued to decline in the first half of 2023, creating a low base. Coupled with currently low crude oil inventories and tightening supply, oil prices are supported to rise. CPI is expected to bottom in Q1, with annual growth around 2-2.5%.

Q2: Rebound risk
The low base effect diminishes, geopolitical conflicts push freight costs higher, and pre-election policy expectations heat up. Q2 is a high-risk period for a US CPI rebound, with annual growth possibly rebounding to 2.8-3.2%.

Q3-Q4: Gradual decline
In the second half, base effects shift to high bases, the Fed is expected to cut rates, and CPI annual growth may return to 2.5-2.8%, close to the Fed’s 2% target.

Risk warnings

If the Red Sea crisis escalates, causing maritime disruptions; if US election leads to aggressive policy expectations; or if OPEC+ again adjusts production cuts, these could disrupt the above forecasts. Market participants should closely monitor these triggers.

Lessons from history: four cycles over the past 30 years

The 2008 subprime crisis and the 2020 pandemic shocks have caused dramatic changes in US CPI forecasts. Each economic crisis (gray areas in charts) was accompanied by CPI declines, followed by Fed stimulus triggering new inflation waves. The high inflation from 2020-2022 was driven by large-scale fiscal relief and zero interest rate policies. This reminds investors that US CPI forecasts ultimately depend on the interplay of policy decisions and external shocks.

Investment insights from the 2024 US CPI forecast

Based on the above analysis, the core logic of the US CPI forecast is: moderate economic growth, rising policy uncertainty, and increasing supply-side costs—these three forces together make a sharp decline in inflation unlikely throughout the year. Investors should expect a slight rebound in CPI in Q2, but an overall downward trend for the year. This outlook exerts mild downward pressure on US stocks but is unlikely to trigger a recession scenario.

For investors tracking the US CPI forecast, it is recommended to set up an event calendar, monitor CPI releases on the first working day of each month (around 20:30 or 21:30 Taiwan time), cross-compare core CPI and PCE data, and pay attention to Fed Chair speeches to grasp the rhythm amid volatility.