While goods inflation persists, services inflation has also risen sharply, especially in housing costs. Inflation in shelters rose sharply in August, with a rent measure rising at the fastest rate since the 1980s. This is important because house prices make up about a third of headline inflation and are expected to remain high for some time to come.
Still, there are reasons to hope that inflation could ease in the coming months. Continuous improvement of the supply chain can help. The recent falls in fuel and grain prices may simply take some time to pass on to consumers. Based on wholesale data, used car prices could fall further.
But there are also risks of additional pressure bubbling up. Chinese lockdowns to contain the coronavirus persist in some cities, and the Russian war in Ukraine continues to create uncertainty over global food and gas prices.
Given the enormous uncertainty, the Fed is likely to maintain its responsive stance. Central bankers are wary of pulling back too soon for fear that if they fail to stamp out inflation now, it will become a more permanent feature of the economy.
If people and companies expect prices to rise year after year, they can act accordingly, with workers demanding better pay increases and companies passing ever higher costs on to consumers.
Inflation expectations actually refused In recent months, a possible sign that lower gas prices and recent actions by the Fed have helped convince consumers that today’s rapid price increases won’t last forever. But central bankers have been clear that they don’t want to take it for granted that it will stay that way and that they are very much attuned to how consumers feel about inflation.
“It is very much our view, and my view, that we must now act candidly and forcefully, as we have done,” Fed chairman Jerome H. Powell said at a conference last week. “And we have to keep going until the job is done.”
Jim Tankersley, Joe Rennison and Ben Casselman reporting contributed.