Guide · Markets
Monthly vs Annual Inflation: How Base Effects Work
Monthly inflation compares prices with the month before; annual inflation compares them with a year earlier. US CPI rose 0.6% in September 2026 and 3.7% over the year.
On Tuesday, November 10, 2026, the Bureau of Labor Statistics will publish October's consumer price index without the number most headlines lead with. Because no prices were collected in October 2025, during the government shutdown, there is no base month, so the report will show a monthly change for headline and core prices but no 12-month rate. It is a rare chance to see why the two measures exist and what each one tells you.
The month-over-month change compares this month's index with last month's. It is usually seasonally adjusted, so that predictable patterns such as holiday discounts or summer travel do not show up as inflation. It is the freshest signal: in September 2026 the headline CPI rose 0.6% and core prices, excluding food and energy, 0.3%. Its weakness is noise. One month's jump in gasoline or airfares can move it by several tenths, and a single reading can reverse the next month.
The year-over-year change compares this month's index with the same month a year earlier, without seasonal adjustment because the season is the same at both ends. It is the figure central banks set targets against and the one most people mean by 'inflation': 3.7% for the headline and 2.6% for core in September 2026. It is smoother, but it is also slow. The annual rate is roughly the sum of the last twelve monthly changes, so a sudden acceleration takes months to show fully, and what happens to the annual rate next month depends as much on the month that drops out as on the month that comes in.
That second effect is the base effect. If prices jumped 0.8% in a month last year and rise 0.2% in the same month this year, the annual rate falls by about 0.6 point even though prices are still rising, because the large monthly increase leaves the 12-month window. The reverse happens when a weak month from last year drops out. Base effects are mechanical and predictable from last year's data, which is why economists often say an annual rate will rise or fall 'for base reasons' before the figure is out.
Annualising a monthly change bridges the two. A 0.3% monthly rise, compounded over twelve months, is about 3.7% a year; 0.2% is about 2.4%; 0.25% is about 3.0%. That is how traders judge a single print against a 2% target: a core reading of 0.2% or less is roughly consistent with it, 0.3% or more is not. Three-month and six-month annualised rates are a common compromise, more current than the 12-month figure and less noisy than one month.
For the October 2026 report, the monthly change is the number to watch. Forecasts are about 0.2% to 0.3% for both headline and core; FactSet's consensus for the headline is about 0.24%. Expect some analysts to estimate an annual rate by averaging the September and November 2025 index levels, which gives figures near 3.8% for the headline if prices were flat, but those are estimates rather than official data. The BLS will resume normal 12-month comparisons with the November report, published on December 10.