Annualising compounds. A quarterly change is raised to the fourth power and a monthly change to the twelfth, which means a small measurement error in one period becomes a large error in the reported rate.
It is nonetheless the right tool for spotting turning points, because three-month and six-month annualised inflation rates reveal a change in momentum long before a twelve-month rate does. Just avoid treating a single annualised month as a forecast.
Example: core-cpi rises 0.28% in a month. Annualised that is 1.0028 to the twelfth power minus one, about 3.4%. An error of just 0.05 points on the month moves the annualised figure by roughly 0.6 points.
Related: seasonal-adjustment, base-effects, gdp-vintages, core-cpi, data-revision