The last mile of the journey in getting inflation back into its box, is the hardest and most intractable. So while US inflation is much lower than it was the latest release yesterday, ahead of the FED rate decision today shows it’s not declining quickly and remains above the Federal Reserve’s targets.
In summary, core inflation matched market expectations in November, increasing at a marginally faster rate of 0.3%. In annualised trend terms, core inflation is running at 3¼%, with rapid core goods disinflation of 3¾% broadly offsetting faster core services inflation of 5½%. But core services excluding housing inflation has picked up to 6% in annualised trend terms, while the trimmed mean CPI – which gives a sense of the breadth of price rises – has picked back up to 3¾%.
The initial spike in 2021 was driven by goods prices, which had been stable for years. That was mainly thanks to the pandemic’s effect on supply chains. That shock is over. At this point, inflation is almost entirely about core services, which include shelter.
The FOMC won’t change rates this week, but it does get to revise the “dot plot” which shows its projected course of interest rates ahead. That would be a way to assure the market that rates are coming down swiftly, but for now the Fed could be reluctant to do anything that encourages more speculation.
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