The US CPI report for June, published on Friday, was the fourth successive monthly print that surprised on the low side. Initially, these inflation misses were dismissed by the Federal Reserve as idiosyncratic and temporary, but they are now becoming too persistent to ignore. If they are not reversed fairly soon, the FOMC will need to give greater weight to the possibility that inflation may not return to target over the next couple of years.
…The FOMC tends to emphasise the behaviour of core PCE inflation when assessing the outlook for the underlying trend in inflation. Here, too, the evidence suggests that the Fed’s 2 per cent inflation target is increasingly in jeopardy.