Trimmed Mean Inflation Gauges Hit Lowest Levels Since Pandemic

The latest inflation data suggests that underlying price pressures are easing, indicating that inflation may be moving closer to the Federal Reserve's long-term target of 2%. The trimmed mean inflation gauges, which exclude unusually large price increases and declines, have fallen to their lowest levels since the early years of the pandemic-induced inflation surge. The Dallas Fed's trimmed mean measure showed one-month annualized inflation slowing to 1.4% in June, down from 2.7% in May and marking its lowest reading since November 2020.

The figures come as Federal Reserve Chair Kevin Warsh has signaled a desire to broaden the range of metrics used when assessing inflation. Warsh emphasized that the central bank is far from declaring victory after more than five years of above-target inflation, stating 'Not one of my FOMC colleagues is under any illusion.' We have begun a new chapter, and we understand that the five-plus years of inflation above target cannot be cured in nine weeks, or by a single month of modest price decreases.'

Citigroup economist Andrew Hollenhorst noted that markets could begin reducing expectations for future interest rate hikes if inflation continues to soften. However, Federal Reserve officials have cautioned against placing too much weight on any single indicator, with Dallas Fed President Lorie Logan warning that recent changes in the composition of price movements may be causing the index to understate the true pace of inflation.