Fed Battles Stubborn Inflation as Energy Prices Continue to Rise
US inflation has been above the Federal Reserve's (Fed) 2% target for five years, and recent interest rate hikes by the Fed are aimed at wrestling it back down. However, higher rates can't produce more oil, which is a significant contributor to current inflation.
The US has two official measures of inflation: the consumer price index (CPI), which tracks household spending, and the personal consumption expenditures index (PCE), which considers household spending as well as items bought on their behalf. Both measures are currently above the Fed's target, with CPI at 3.4% in August and PCE at 3.7% in July.
Core inflation, excluding food and energy prices, was 2.4% in August on the CPI measure and 3.3% in July on PCE. Consumer services, including healthcare and travel, have been sticky, with many categories still posting increases above 3%. Energy inflation has also contributed to the current high rates, driven by supply chain disruptions and refinery damage in the Middle East.
The Fed's projections suggest that inflation will come down relatively quickly, dropping from 3.7% at the end of this year to 2.3% by the end of 2027. However, many factors could influence this outcome, including oil supply chain fragility and potential disruptions in global trade routes.