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Core inflation remains tame

February 11, 2021

Graph depicting yearly changes in the Atlanta Fed's core sticky consumer price index

Source: Federal Reserve Bank of Atlanta

The core CPI was weaker than expected in January with an unchanged reading, pushing the year-over-year pace down to 1.4 percent. Details were mixed, as sizeable increases in apparel and medical care prices were offset by declines in autos and recreation and another modest gain in rents.

So while market expectations for inflation remain on the climb, actual price changes continue to come in on the tame side. It is still to be expected that these numbers will pop later this year as the annual comps become easier – recall that the core index declined in both April and May of last year – and a fully reopened economy drives a resetting in the most pandemic-affected categories (consider that the lodging away from home component is currently down by 13.3 percent on an annual basis while airfares are off by 21.3 percent), but there is little to suggest that such a spike will produce much follow-through. The Atlanta Fed’s core sticky CPI, a measure of sustainable price changes, barely budged last month and is still slowing sharply year-over-year.

Importantly, many Fed officials, including Jerome Powell, Lael Brainard, Robert Kaplan, and Thomas Barkin, have indicated explicitly in recent weeks that they will see through these transitory effects and in fact welcome the recent rise in inflation expectations (contrast this with the bank’s stance in the spring of 2008, when rising oil prices and the last vestiges of core inflation from the prior expansion led to a de facto tightening bias even as the economy was already several months into a recession). The combination of aggressive monetary policy support and what is shaping up to be a robust economic rebound suggests the potential for an eventual surge in price pressures, but it will take some time before the disinflationary impulse from last year’s recession fully runs its course, as the Fed itself already anticipates.

Daily Trivia

Later eclipsed by a non-profit alternative more than 230 years its junior, what is the only firm that predates the 19th century to have ever had one of the world’s ten most popular websites?

Previous Question

Who are the only two Federal Reserve chairs in the post-World War II era whose tenures did not include any periods of recession?


G. William Miller and Janet Yellen


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