- wyatt8240
- Jan 14
- 6 min read
December 2025 Forecast Validates Our Models in an Increasingly Noisy Inflation Environment
We Called It Weeks Ahead
This morning's December 2025 CPI release confirmed what our models have been signaling for weeks: core inflation remains stable and contained at 2.6% year-over-year.
XTech's Core CPI Forecast (Released January 8, 5 days before BLS):
Core CPI MoM: +0.2% → Actual: +0.2% ✅ (exact match)
Core CPI YoY: +2.6% → Actual: +2.6% ✅ (exact match)
XTech releases two forecasts per cycle: an initial forecast ~20 days before the official release, followed by this refined forecast 5 days before. Both forecasts give institutional clients multiple positioning windows.
Wall Street Consensus Expectation:
Core CPI MoM: +0.3% ❌ (50% higher than actual)
Core CPI YoY: 2.7% ❌ (10 basis points too hot)
They positioned for hotter core inflation. They missed. We didn't.
This isn't luck. In an environment where CPI forecasting has become increasingly difficult—with government shutdown disruptions, residual data issues, and elevated noise across the inflation complex—getting core inflation right is what separates signal from noise.
Why This Result Matters More Than Usual
CPI forecasting in late 2025 and early 2026 has become materially more challenging than any period since the pandemic:
1. The October Data Blackout
The October 1-November 12 government shutdown created a permanent gap in the inflation time series. The BLS never collected October 2025 CPI data, forcing forecasters to bridge across a missing month when projecting November and December trends.
Our alternative data infrastructure continued operating through the shutdown. Consensus economists had to interpolate. That structural advantage showed up in today's results.
2. Residual Seasonal Pattern Disruptions
Post-pandemic seasonal adjustments are still normalizing. Holiday shopping patterns, return-to-office dynamics, and shifting consumption baskets are creating noise that traditional models—built on pre-2020 seasonal patterns—struggle to capture.
Our machine learning approach adapts to regime changes. It doesn't assume 2019 seasonality still applies in 2026.
3. Fiscal Dominance Changing Inflation Dynamics
As HSBC Chief Strategist Joe Little recently noted, fiscal dominance—high government debt constraining central bank behavior—is creating "stickier" inflation dynamics than the 2010s low-volatility regime.
In this environment, precise core inflation forecasting becomes infrastructure, not just an edge. Markets need to know whether underlying price pressures are re-accelerating or continuing to disinflate. Traditional consensus polling can't provide that with the required accuracy.
That's what makes our 2.6% core forecast—released weeks ahead, matching the actual print—meaningful.
What Core Inflation at 2.6% Tells Us
Today's core CPI confirmation at 2.6% year-over-year validates three key signals our models have been transmitting:
→ Inflation is NOT Re-Accelerating
Core CPI at 2.6% represents continued disinflation from the 3%+ levels seen in mid-2024. Despite headline volatility (driven by food prices this month), the underlying inflation trend remains downward.
This is the most important signal for Fed policy. Policymakers needed evidence that their December rate cut to 3.50%-3.75% wasn't premature. Core at 2.6% provides that evidence.
→ Core Inflation Remains Stable and Contained
Month-over-month core inflation at +0.2% (matching our 0.2% forecast) shows no breakout, no acceleration, no concerning signals. Just steady, contained price growth consistent with the Fed returning to its 2% target over time.
Contrast this with consensus expectations of +0.3% MoM—a 50% higher growth rate that would have suggested persistent inflation pressures. That's not what happened.
We called it correctly.
→ Disinflation Pressures Remain in Place Into 2026
Core inflation at 2.6% year-over-year validates the continued disinflation trend our models forecasted.
Consensus Got It Wrong. Here's Why That Matters.
Wall Street consensus positioned for hotter core inflation (+0.3% MoM, 2.7% YoY). They were wrong on both metrics.
This isn't a small miss. Consensus expectations drive:
Treasury futures positioning
Fed policy pricing in rate markets
Cross-asset correlations (FX, equities, commodities)
Systematic trading signals
When consensus is positioned for 2.7% core and gets 2.6%, markets reprice. That repricing is where our systematic trading strategies (72% win rate on JGBs, 83% win rate on Treasuries) generate alpha.
Our clients received our 2.6% core forecast on January 8—5 days before the release. They had time to position against consensus.
They had the information edge.
That's what advance inflation intelligence delivers in an environment where traditional consensus forecasting can't keep pace.
How We Did It: Alternative Data + Machine Learning
Our CPI forecasting engine doesn't rely on surveys, sentiment, or interpolation. We're processing:
✅ Real-time price data across every major CPI category
✅ Granular alternative datasets from LSEG and proprietary partnerships
✅ Machine learning models trained on 8+ years of inflation regime data
✅ Adaptive algorithms that learn from regime changes (pandemic, shutdown, fiscal dominance)
The Unifier platform runs thousands of scenarios daily, generating probabilistic forecasts that our research team validates before publication.
This infrastructure is why we continued forecasting accurately during the October government shutdown when official data collection stopped. Alternative data doesn't depend on BLS surveys. It captures real economic activity independently.
That structural advantage showed up again in December.
Our Two-Forecast System: Maximum Positioning Edge
XTech releases two distinct CPI forecasts per monthly cycle, giving institutional clients multiple windows to position:
First Forecast (~20 days before BLS release):
Released December 23 for the January 15 print
87% historical correlation to actual core CPI
Early intelligence for building conviction
Second Forecast (~5 days before BLS release):
Released January 14 for the January 15 print
88% correlation, 95% sign accuracy (correct direction)
Final refinement calling core at 2.64% vs actual 2.6%
This dual-window approach allows traders to:
Build positions early based on 20-day forecast (higher conviction, more lead time)
Refine positions based on 5-day forecast (maximum accuracy as release approaches)
Capture edge at both positioning windows vs consensus that forms just 2-5 days before release
For December, subscribers knew our core inflation call 23 days before Wall Street consensus formed. That's not an edge. That's a structural advantage.
Track Record: 2025 Performance vs Consensus
Since launching our CPI forecasting product in January 2025, XTech has consistently demonstrated superior accuracy:
2025 Full-Year Performance:
XTech Initial Forecast (released ~20 days early): 44.2% hit rate
XTech Final Forecast (released ~5 days early): 48.4% hit rate
Consensus Initial: 31.6% hit rate
Consensus Final: 33.7% hit rate
Average lead time advantage: 15+ days ahead of consensus formation
December 2025 extends this track record. While consensus positioned for hotter core inflation, our models correctly identified the 2.6% level weeks in advance.
What This Means for Systematic Trading Strategies
Our systematic fixed income strategies—backtested over 8 years (November 2017 - September 2025)—are built on exactly this type of forecast accuracy:
10-Year JGB Futures Strategy:
72% win rate trading around CPI releases
1.01 Sharpe Ratio, 1.85 Sortino Ratio
40% Kelly Edge
Triggered by core CPI forecast divergence from consensus
details here
30-Year US Treasury Futures Strategy:
83.3% win rate trading around CPI releases
1.17 Sharpe Ratio
45.7% Kelly Edge
3.4 highly-selective trades per year
details here
USD/JPY Futures Strategy:
66% win rate trading around CPI releases
1.23 Sortino Ratio
Edge per trade: 18 basis points
near-monthly trade frequency
details here
December is a perfect case study: Consensus expected core at 2.7% (hotter), we forecasted 2.6% (spot on). That divergence triggers trade signals. When the official data confirms our forecast, positions reprice in our favor.
This is how advance inflation intelligence translates into systematic alpha.
Looking Ahead: January 2026 Forecast Cycle
We'll release our first January 2026 CPI forecast around January 28 (~20 days before the February 12 BLS release), followed by our refined second forecast around February 7 (~5 days before release).
Key questions for January:
Does the disinflation trend continue or stabilize?
Do any components show signs of re-acceleration?
Does fiscal dominance create stickier inflation dynamics than 2024?
Our models will continue doing what they did for December: processing alternative data in real-time, identifying signal through noise, and delivering forecasts weeks ahead of consensus with superior accuracy.
The Bottom Line: Signal Over Noise
CPI forecasting has become materially more difficult. Government shutdowns, data disruptions, regime changes, and fiscal dominance are all raising the bar for precise inflation calls.
That's exactly when having alternative data infrastructure matters most.
December 2025 core CPI:
Consensus: 2.7% (wrong)
XTech: 2.6% (correct, weeks early)
The underlying inflation signal remains intact: → Inflation is not re-accelerating→ Core inflation is stable and contained→ Disinflation pressures remain in place into 2026
This is exactly what our models have been signaling—well ahead of consensus.
Get Access: Trial the CPI Forecasting System
Our CPI forecast dataset includes:
✅ Two monthly forecasts per release (20 days + 5 days advance notice)
✅ Core and headline CPI with probabilistic confidence intervals
✅ Backtested trading signals across Treasuries, JGBs, FX
✅ Real-time dashboard tracking historical accuracy
✅ API integration via Unifier platform
📧 Contact: sales@exponential-tech.ai
☎️ Phone: +1 (807) 703-3188
The January 2026 forecast cycle begins in two weeks.
Position ahead of consensus.
About XTech Global Macro Forecasts
Exponential Technology provides institutional-grade macroeconomic forecasts powered by alternative data and machine learning.
2025 Track Record:
48.4% hit rate (final forecast) vs. 33.7% consensus
95% sign accuracy on core inflation forecasts
24 days average lead time vs. 2 days for consensus
Operated continuously through 2025 government shutdown
When consensus misses, XTech delivers.
Disclaimer: This material is for informational purposes only and does not constitute investment advice. Past performance is not indicative of future results. XTech Macro Forecasts are provided as data, not recommendations.
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