The good news in the CPI report is that Core Services inflation (sticky inflation) is running at 2% over the last three months. Moreover, shelter costs accounted for nearly all of this month's rise in core inflation, but are clearly peaking and starting to decline. Looking at consensus forecasts for the next 16 months overall core inflation should be running at 2% per annum by the end of next year, and in hypothetical price level targeting terms, inflation will be back at target.
The less good news for core service sector inflation is that the last few months is as good as it is likely to get and the Fed does not yet seem in the mood to be that patient.
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