CONTRIBUTORS
Michael J. Bazdarich, PhD
Preview
After 2021's inflation surprise, we now see inflation declining back toward the US Federal Reserve's (Fed) target range. Recent monthly inflation rates are near 2% if you exclude housing data distortions. Supply recoveries and policy reversals drove disinflation without a recession, indicating their importance. Here we argue that core inflation should trend lower as supply recovers further, consumers slow and monetary policy stays tight. Shelter inflation should also moderate as home prices stabilize. With inflation essentially at target already, we believe the Fed just needs to sustain current rates.
Key takeaways
- Inflation has already declined back near the Fed's 2% target based on recent monthly trends.
- Disinflation without recession highlights the key role supply recoveries and policy reversals have played.
- Shelter inflation should moderate soon as home prices have stabilized after surging earlier.
- Most services components already show inflation at 2% or clearly on downward trends.
- The supercore Personal Consumption Expenditures Price Index (PCE) pop in July appears transitory rather than signaling a resurgence of inflation.
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