Will inflation continue to rise? It’s a question on a lot of people’s minds.

According to our real-time inflation indexes — that track millions of online prices in real time — we expect higher inflation in January’s CPI (to be released Thursday February 10).

I’m basing that nowcast on Dotdat’s real-time Transport CPI (transportation historically accounts for over 80 percent of the variation in the US’s headline CPI). In this measure, each observation represents the sum of daily inflation over the previous 30 days. As shown in the figure below, real-time transport inflation averaged 1.1 percent in December, slightly above the official CPI-U print of 0.80 percent (the orange bubble), then accelerating to over 1.5 percent in January.

This move up followed the year-end acceleration in unleaded gasoline prices (seasonally adjusted). Other goods in the transportation category have exhibited steady inflation consistent with previous trends - like new cars with monthly real-time inflation near 1 percent (the right figure below) - or accelerations from low initial levels, like tires or auto parts.

Services have shown more flexible price adjustment in recent months — whether in response to the initial pandemic shock or to the more recent Omicron variant — like car insurance, with a significant weight in the transportation index. In the figure below, the inset at the top right shows the 12-month percentage change in the official CPI for car insurance, which has almost completed the process of payback from the original pandemic shock — i.e. it has gone through that process of having an unusual period of low inflation followed by a period of payback, and now seems to be returning to its pre-pandemic trend. (It is perhaps the elusive example of transitory inflation). Premiums fell in the Spring of 2020 as demand fell, rebounded in 2021, and have since completed the process of normalization, as shown by Dotdat’s real-time data, the line in the figure below, which has matched the official data reasonably well - each of the orange dots shows the BLS’s official inflation print for that month.

If we think of car insurance as an example in which both the direction and the magnitude of the pandemic’s initial inflation shock have been reversed, in the case of rental cars, the magnitude of the original shock has subsided but not been reversed.

The initial decline and payback acceleration of inflation in 2020 was followed by the well documented persistent run up in early 2021, as shown in the 1-month percentage change in the official CPI index in the inset figure below, which no subsequent commensurate payback.

Again the real-time data match the official data reasonably well - each of the orange dots shows the BLS’s official inflation print for that month.

It is also quite interesting to observe the rapid price adjustment in airfares and car rentals inflation following the rapid onset of Omicron in December 2021. The 15-percent decline in airfares inflation in January was the mirror image of the run-up in rental-car inflation as travelers substituted one for the other.