The familiar story of sticky US inflation

US core inflation remains persistently high.
Kieran Davies

Coolabah Capital

Ahead of the 13-14 June FOMC meeting, where Fed Chair Powell is currently leaning towards pausing in raising rates, policy-markers will receive a payrolls report at the end of this week and another CPI release on the first day of the two-day meeting. 

However, in terms of the Fed’s preferred measure of inflation, namely, the core PCE deflator, underlying inflation remains persistently high and has shown little change over recent months. 

With core PCE inflation marginally above market expectations in April, annualised monthly inflation has been running at between 4½ and 4¾% for about a year now in trend terms, which is well above the Fed's 2% target. 

Measures of the breadth of price gains are a little better, with, for example, annualised trend trimmed mean PCE inflation running at about 4½%, but still remains high. 

Although hard to see on a chart, the San Francisco Fed estimates that supply factors have made a slightly smaller contribution to trend core PCE inflation, while the contribution from demand factors has picked up after cooling a little at the end of last year and remains solid.  

Core US inflation has been persistently high
Core US inflation has been persistently high


Measures of the breadth of price changes tell the same story 
Measures of the breadth of price changes tell the same story 


The estimated contribution of demand to core inflation remains solid
The estimated contribution of demand to core inflation remains solid


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Kieran Davies
Chief Macro Strategist
Coolabah Capital

Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 40 executives and over $8 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment strategy,...

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