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SOURCES: Bureau of Economic Analysis and Haver Analytics.

In the period prior to the COVID-19 pandemic, prices were growing at an average annual rate of 1.8%, slightly below the Federal Reserve’s 2% target. This growth process, which we call inflation, was arrested at the onset of the pandemic and resumed toward the end of 2020, though at a significantly faster rate. We can see that energy prices played an important role in this period, as the acceleration and subsequent deceleration in inflation were less pronounced once we excluded them. The index excluding energy and food and the index excluding energy show a steadier, more consistent increase.

The second figure shows inflation rates, measured as the 12-month change in the corresponding price index. For all three indexes considered, annual inflation has persistently exceeded 2% since March 2021. This figure shows clearly how energy contributed to inflation dynamics. However, when we exclude energy prices, inflation is still very high, staying over 5% annually for all of 2022 and just under 5% in March 2023. When looking at core PCE, i.e., excluding both food and energy, there is a modest moderation in inflation from its peak, but it is much less pronounced than with headline inflation.

Annualized PCE Inflation Rates

The first table provides a summary of inflation rates over various periods of interest. The first, 2016-19, covers the years immediately prior to the pandemic, when inflation was close to the Federal Reserve’s 2% target. Next are the years 2020, 2021 and 2022. Finally, the period labeled “COVID-19” covers the whole pandemic period, between March 2020 and March 2023. All inflation rates are annualized to make them comparable across periods of different lengths.

The table highlights how inflation accelerated in 2021 and 2022. Overall, the aggregate price level rose at an average annual rate of 4.3% since the start of the COVID-19 pandemic. This rate moderates to 4.1% annually when we exclude energy prices and 3.9% annually when we exclude both food and energy prices. These rates are between 2.1 and 2.5 percentage points higher than the pre-pandemic period and well in excess of the Federal Reserve’s 2% target.

Breaking Down Inflation

The second table decomposes inflation excluding energy into four big categories: food, core goods, core services excluding housing, and housing. The contribution of these components in total consumption expenditures is, roughly, 8%, 22%, 50% and 16%, respectively (the remaining 4% reflects expenditures in energy goods and services).

The behavior of these components was very different during the pre-pandemic period: Food experienced almost no inflation, core goods prices were actually declining (mostly driven by durables), while core services excluding housing and housing were both growing above the Federal Reserve’s target rate. The pandemic changed these trends: Since 2021, all components have been growing at rates higher than 2% annually. For the overall pandemic period, food experienced the fastest inflation rate (6.6% annually), followed by housing (4.8% annually). In recent communications, Fed Chair Jerome Powell has identified the category “core services excluding housing” as key in understanding inflation dynamics. As Powell explained in his Nov. 30, 2022, speech, the reason is that “ wages make up the largest cost in delivering these services .” Inflation in this category has largely behaved the same as for the core price index and remains well above 2%.

Components of the PCE Price Index Excluding Energy

Above, the third figure shows the evolution of prices of the main components discussed earlier.

Notably, the price of core goods seems to have stabilized during the second half of 2022, while inflation in food prices has decelerated markedly over the same period. In contrast, the rate at which the price of core services excluding housing is increasing shows no signs of slowing down. Similarly, housing services actually experienced a significant acceleration in inflation in 2022. It is well understood that housing prices tend to lag other prices, This is because rents are renewed infrequently (e.g., once a year) and because owner-occupied housing prices are also measured largely using rent data. so the most recent observations may reflect this lag rather than a current trend. Even if this were the case, core services excluding housing—which account for half of consumption expenditures—continue to rise steadily and are a major contributor to overall inflation.

Inflation Is Widespread

We can further analyze inflation across individual product categories by computing their annualized price change and expenditure share in each period. The fourth figure estimates the distribution of inflation across product categories, with annualized price changes on the horizontal axes and the corresponding expenditure shares on the vertical axes. The disaggregated data published by the Bureau of Economic Analysis consist of 244 product categories with monthly series on expenditures, prices and real quantities. There is some double counting in the report, so the actual number of product categories is slightly smaller. See NIPA tables 2.4.4U, 2.4.5U and 2.4.6U. For a full description of the methodology, see my blog post “ How Widespread Are Price Increases in the U.S.? ” (Oct. 19, 2021). I considered two periods: the pre-pandemic period (2016-19) and the COVID-19 period (March 2020 to March 2023). Focusing on the COVID-19 period as a whole removes the effects of temporary surges in prices and provides a better overall picture.

Estimated Distribution of PCE Inflation

SOURCES: Bureau of Economic Analysis and author’s calculations.

NOTES: Distributions are computed with kernel density estimation in Stata, using the optimal bandwidth for each period. The COVID-19 period covers March 2020 to March 2023.

The pandemic has shifted the distribution of inflation to the right. That is, during the COVID-19 period, a larger share of consumption expenditures were on products that experienced higher inflation rates than in the pre-pandemic years. The current high inflation episode is a widespread phenomenon and not the result of a few outliers.

The distribution of inflation across product categories also highlights several important differences between the pre-pandemic and COVID-19 periods. From 2016 to 2019, 18% of consumption expenditures were on products experiencing negative inflation; this proportion drops to less than 1% in the COVID-19 period. Conversely, the share of expenditures on products experiencing more than 5% annual inflation was only 5% in the pre-pandemic period and rose to over 40% during the COVID-19 period. These are significant changes that help us understand the nature of the current high inflation.

In my next post , I’ll examine the impact of fiscal and monetary policies during this inflationary episode and provide a plausible outlook for the near future.

• For previous work on this subject, see my blog posts “ 2021: The Year of High Inflation ” (April 12, 2022) and “ Inflation Is Still High and Widespread ” (Oct. 17, 2022).
• There are many alternative measures of underlying or trend inflation. For a recent take, see Kevin Kliesen’s April 18, 2023, Economic Synopses essay, “ Measures of ‘Trend’ Inflation .”
• As Powell explained in his Nov. 30, 2022, speech, the reason is that “ wages make up the largest cost in delivering these services .”
• This is because rents are renewed infrequently (e.g., once a year) and because owner-occupied housing prices are also measured largely using rent data.
• The disaggregated data published by the Bureau of Economic Analysis consist of 244 product categories with monthly series on expenditures, prices and real quantities. There is some double counting in the report, so the actual number of product categories is slightly smaller. See NIPA tables 2.4.4U, 2.4.5U and 2.4.6U. For a full description of the methodology, see my blog post “ How Widespread Are Price Increases in the U.S.? ” (Oct. 19, 2021).

Fernando M. Martin is an economist and senior economic policy advisor at the Federal Reserve Bank of St. Louis. His research interests include macroeconomics, monetary economics, banking and public finance. He joined the St. Louis Fed in 2011. Read more about his work .

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This blog offers commentary, analysis and data from our economists and experts. Views expressed are not necessarily those of the St. Louis Fed or Federal Reserve System.

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What is inflation?

Inflation has been top of mind for many over the past few years. But how long will it persist? In June 2022, inflation in the United States jumped to 9.1 percent, reaching the highest level since February 1982. The inflation rate has since slowed in the United States , as well as in Europe , Japan , and the United Kingdom , particularly in the final months of 2023. But even though global inflation is higher than it was before the COVID-19 pandemic, when it hovered around 2 percent, it’s receding to historical levels . In fact, by late 2022, investors were predicting that long-term inflation would settle around a modest 2.5 percent. That’s a far cry from fears that long-term inflation would mimic trends of the 1970s and early 1980s—when inflation exceeded 10 percent.

Get to know and directly engage with senior McKinsey experts on inflation.

Ondrej Burkacky is a senior partner in McKinsey’s Munich office, Axel Karlsson is a senior partner in the Stockholm office, Fernando Perez is a senior partner in the Miami office, Emily Reasor is a senior partner in the Denver office, and Daniel Swan is a senior partner in the Stamford, Connecticut, office.

Inflation refers to a broad rise in the prices of goods and services across the economy over time, eroding purchasing power for both consumers and businesses. Economic theory and practice, observed for many years and across many countries, shows that long-lasting periods of inflation are caused in large part by what’s known as an easy monetary policy . In other words, when a country’s central bank sets the interest rate too low or increases money growth too rapidly, inflation goes up. As a result, your dollar (or whatever currency you use) will not go as far  today as it did yesterday. For example: in 1970, the average cup of coffee in the United States cost 25 cents; by 2019, it had climbed to $1.59. So for $5, you would have been able to buy about three cups of coffee in 2019, versus 20 cups in 1970. That’s inflation, and it isn’t limited to price spikes for any single item or service; it refers to increases in prices across a sector, such as retail or automotive—and, ultimately, a country’s economy.

How does inflation affect your daily life? You’ve probably seen high rates of inflation reflected in your bills—from groceries to utilities to even higher mortgage payments. Executives and corporate leaders have had to reckon with the effects of inflation too, figuring out how to protect margins while paying more for raw materials.

But inflation isn’t all bad. In a healthy economy, annual inflation is typically in the range of two percentage points, which is what economists consider a sign of pricing stability. When inflation is in this range, it can have positive effects: it can stimulate spending and thus spur demand and productivity when the economy is slowing down and needs a boost. But when inflation begins to surpass wage growth, it can be a warning sign of a struggling economy.

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Inflation may be declining in many markets, but there’s still uncertainty ahead: without a significant surge in productivity, Western economies may be headed for a period of sustained inflation or major economic reset , as Japan has experienced in the first decades of the 21st century.

What does seem to be changing are leaders’ attitudes. According to the 2023 year-end McKinsey Global Survey on economic conditions , respondents reported less fear about inflation as a risk to global and domestic economic growth . But this sentiment varies significantly by region: European respondents were most concerned about the effects of inflation, whereas respondents in North America offered brighter views.

What causes inflation?

Monetary policy is a critical driver of inflation over the long term. The current high rate of inflation is a result of increased money supply , high raw materials costs , labor mismatches , and supply disruptions —exacerbated by geopolitical conflict .

In general, there are two primary types, or causes, of short-term inflation:

• Demand-pull inflation occurs when the demand for goods and services in the economy exceeds the economy’s ability to produce them. For example, when demand for new cars recovered more quickly than anticipated from its sharp dip at the beginning of the COVID-19 pandemic, an intervening shortage  in the supply of semiconductors  made it hard for the automotive industry to keep up with this renewed demand. The subsequent shortage of new vehicles resulted in a spike in prices for new and used cars.
• Cost-push inflation occurs when the rising price of input goods and services increases the price of final goods and services. For example, commodity prices spiked sharply  during the pandemic as a result of radical shifts in demand, buying patterns, cost to serve, and perceived value across sectors and value chains. To offset inflation and minimize impact on financial performance, industrial companies were forced to increase prices for end consumers.

Learn more about McKinsey’s Growth, Marketing & Sales  Practice.

What are some periods in history with high inflation?

Economists frequently compare the current inflationary period with the post–World War II era , when price controls, supply problems, and extraordinary demand in the United States fueled double-digit inflation gains—peaking at 20 percent in 1947—before subsiding at the end of the decade. Consumption patterns today have been similarly distorted, and supply chains have been disrupted  by the pandemic.

The period from the mid-1960s through the early 1980s in the United States, sometimes called the “Great Inflation,” saw some of the country’s highest rates of inflation, with a peak of 14.8 percent in 1980. To combat this inflation, the Federal Reserve raised interest rates to nearly 20 percent. Some economists attribute this episode partially to monetary policy mistakes rather than to other causes, such as high oil prices. The Great Inflation signaled the need for public trust  in the Federal Reserve’s ability to lessen inflationary pressures.

Inflation isn’t solely a modern-day phenomenon, of course. One very early example of inflation comes from Roman times, from around 200 to 300 CE. Roman leaders were struggling to fund an army big enough to deal with attackers from multiple fronts. To help, they watered down  the silver in their coinage, causing the value of money to slowly fall—and inflation to pick up. This led merchants to raise their prices, causing widespread panic. In response, the emperor Diocletian issued what’s now known as the Edict on Maximum Prices, a series of price and wage controls designed to stop the rise of prices and wages (one helpful control was a maximum price for a male lion). But because the edict didn’t address the root cause of inflation—the impure silver coin—it didn’t fix the problem.

How is inflation measured?

Statistical agencies measure inflation first by determining the current value of a “basket” of various goods and services consumed by households, referred to as a price index. To calculate the rate of inflation over time, statisticians compare the value of the index over one period with that of another. Comparing one month with another gives a monthly rate of inflation, and comparing from year to year gives an annual rate of inflation.

In the United States, the Bureau of Labor Statistics publishes its Consumer Price Index (CPI), which measures the cost of items that urban consumers buy out of pocket. The CPI is broken down by region and is reported for the country as a whole. The Personal Consumption Expenditures (PCE) price index —published by the US Bureau of Economic Analysis—takes into account a broader range of consumer spending, including on healthcare. It is also weighted by data acquired through business surveys.

How does inflation affect consumers and companies differently?

Inflation affects consumers most directly, but businesses can also feel the impact:

• Consumers lose purchasing power when the prices of items they buy, such as food, utilities, and gasoline, increase. This can lead to household belt-tightening and growing pessimism about the economy .
• Companies lose purchasing power and risk seeing their margins decline , when prices increase for inputs used in production. These can include raw materials like coal and crude oil , intermediate products such as flour and steel, and finished machinery. In response, companies typically raise the prices of their products or services to offset inflation, meaning consumers absorb these price increases. The challenge for many companies is to strike the right balance between raising prices to cover input cost increases while simultaneously ensuring that they don’t raise prices so much that they suppress demand.

How can organizations respond to high inflation?

During periods of high inflation, companies typically pay more for materials , which decreases their margins. One way for companies to offset losses and maintain margins is by raising prices for consumers. However, if price increases are not executed thoughtfully, companies can damage customer relationships and depress sales —ultimately eroding the profits they were trying to protect.

When done successfully, recovering the cost of inflation for a given product can strengthen relationships and overall margins. There are five steps companies can take to ADAPT  (adjust, develop, accelerate, plan, and track) to inflation:

• Adjust discounting and promotions and maximize nonprice levers. This can include lengthening production schedules or adding surcharges and delivery fees for rush or low-volume orders.
• Develop the art and science of price change. Instead of making across-the-board price changes, tailor pricing actions to account for inflation exposure, customer willingness to pay, and product attributes.
• Accelerate decision making tenfold. Establish an “inflation council” that includes dedicated cross-functional, inflation-focused decision makers who can act quickly and nimbly on customer feedback.
• Plan options beyond pricing to reduce costs. Use “value engineering” to reimagine a portfolio and provide cost-reducing alternatives to price increases.
• Track execution relentlessly. Create a central supporting team to address revenue leakage and to manage performance rigorously. Traditional performance metrics can be less reliable when inflation is high .

Beyond pricing, a variety of commercial and technical levers can help companies deal with price increases in an inflationary market , but other sectors may require a more tailored response to pricing.

Learn more about our Financial Services , Industrials & Electronics , Operations , Strategy & Corporate Finance , and  Growth, Marketing & Sales Practices.

How can CEOs help protect their organizations against uncertainty during periods of high inflation?

In today’s uncertain environment, in which organizations have a much wider range of stakeholders, leaders must think about performance beyond short-term profitability. CEOs should lead with the complete business cycle and their complete slate of stakeholders in mind.

CEOs need an inflation management playbook , just as central bankers do. Here are some important areas to keep in mind while scripting it:

• Design. Leaders should motivate their organizations to raise the profile of design  to a C-suite topic. Design choices for products and services are critical for responding to price volatility, scarcity of components, and higher production and servicing costs.
• Supply chain. The most difficult task for CEOs may be convincing investors to accept supply chain resiliency as the new table stakes. Given geopolitical and economic realities, supply chain resiliency has become a crucial goal for supply chain leaders, alongside cost optimization.
• Procurement. CEOs who empower their procurement  organizations can raise the bar on value-creating contributions. Procurement leaders have told us time and again that the current market environment is the toughest they’ve experienced in decades. CEOs are beginning to recognize that purchasing leaders can be strategic partners by expanding their focus beyond cost cutting to value creation.
• Feedback. A CEO can take a lead role in playing back the feedback the organization is hearing. In today’s tight labor market, CEOs should guide their companies to take a new approach to talent, focusing on compensation, cultural factors, and psychological safety .
• Pricing. Forging new pricing relationships with customers will test CEOs in their role as the “ultimate integrator.” Repricing during inflationary times is typically unpleasant for companies and customers alike. With setting new prices, CEOs have the opportunity to forge deeper relationships with customers, by turning to promotions, personalization , and refreshed communications around value.
• Agility. CEOs can strive to achieve a focus based more on strategic action and less on firefighting. Managing the implications of inflation calls for a cross-functional, disciplined, and agile response.

A practical example: How is inflation affecting the US healthcare industry?

Consumer prices for healthcare have rarely risen faster than the rate of inflation—but that’s what’s happening today. The impact of inflation on the broader economy has caused healthcare costs to rise faster than the rate of inflation. Experts also expect continued labor shortages in healthcare—gaps of up to 450,000 registered nurses and 80,000 doctors —even as demand for services continues to rise. This drives up consumer prices and means that higher inflation could persist. McKinsey analysis as of 2022 predicted that the annual US health expenditure is likely to be $370 billion higher by 2027 because of inflation.

This climate of risk could spur healthcare leaders to address productivity, using tech levers to boost productivity while also reducing costs. In order to weather the storm, leaders will need to quickly set high aspirations, align their organizations around them, and execute with speed .

What is deflation?

If inflation is one extreme of the pricing spectrum, deflation is the other. Deflation occurs when the overall level of prices in an economy declines and the purchasing power of currency increases. It can be driven by growth in productivity and the abundance of goods and services, by a decrease in demand, or by a decline in the supply of money and credit.

Generally, moderate deflation positively affects consumers’ pocketbooks, as they can purchase more with less money. However, deflation can be a sign of a weakening economy, leading to recessions and depressions. While inflation reduces purchasing power, it also reduces the value of debt. During a period of deflation, on the other hand, debt becomes more expensive. And for consumers, investments such as stocks, corporate bonds, and real estate become riskier.

A recent period of deflation in the United States was the Great Recession, between 2007 and 2008. In December 2008, more than half of executives surveyed by McKinsey  expected deflation in their countries, and 44 percent expected to decrease the size of their workforces.

When taken to their extremes, both inflation and deflation can have significant negative effects on consumers, businesses, and investors.

For more in-depth exploration of these topics, see McKinsey’s Operations Insights  collection. Learn more about Operations consulting , and check out operations-related job opportunities  if you’re interested in working at McKinsey.

Articles referenced:

• “ Investing in productivity growth ,” March 27, 2024, Jan Mischke , Chris Bradley , Marc Canal, Olivia White , Sven Smit , and Denitsa Georgieva
• “ Economic conditions outlook during turbulent times, December 2023 ,” December 20, 2023
• “ Forward Thinking on why we ignore inflation—from ancient times to the present—at our peril with Stephen King ,” November 1, 2023
• “ Procurement 2023: Ten CPO actions to defy the toughest challenges ,” March 6, 2023, Roman Belotserkovskiy , Carolina Mazuera, Marta Mussacaleca , Marc Sommerer, and Jan Vandaele
• “ Why you can’t tread water when inflation is persistently high ,” February 2, 2023, Marc Goedhart and Rosen Kotsev
• “ Markets versus textbooks: Calculating today’s cost of equity ,” January 24, 2023, Vartika Gupta, David Kohn, Tim Koller , and Werner Rehm  
• “ Inflation-weary Americans are increasingly pessimistic about the economy ,” December 13, 2022, Gonzalo Charro, Andre Dua , Kweilin Ellingrud , Ryan Luby, and Sarah Pemberton
• “ Inflation fighter and value creator: Procurement’s best-kept secret ,” October 31, 2022, Roman Belotserkovskiy , Ezra Greenberg , Daphne Luchtenberg, and Marta Mussacaleca
• “ Prime Numbers: Rethink performance metrics when inflation is high ,” October 28, 2022, Vartika Gupta, David Kohn, Tim Koller , and Werner Rehm
• “ The gathering storm: The threat to employee healthcare benefits ,” October 20, 2022, Aditya Gupta , Akshay Kapur , Monisha Machado-Pereira , and Shubham Singhal
• “ Utility procurement: Ready to meet new market challenges ,” October 7, 2022, Roman Belotserkovskiy , Abhay Prasanna, and Anton Stetsenko
• “ The gathering storm: The transformative impact of inflation on the healthcare sector ,” September 19, 2022, Addie Fleron, Aneesh Krishna , and Shubham Singhal
• “ Pricing during inflation: Active management can preserve sustainable value ,” August 19, 2022, Niels Adler and Nicolas Magnette
• “ Navigating inflation: A new playbook for CEOs ,” April 14, 2022, Asutosh Padhi , Sven Smit , Ezra Greenberg , and Roman Belotserkovskiy
• “ How business operations can respond to price increases: A CEO guide ,” March 11, 2022, Andreas Behrendt ,  Axel Karlsson , Tarek Kasah, and  Daniel Swan
• “ Five ways to ADAPT pricing to inflation ,” February 25, 2022,  Alex Abdelnour , Eric Bykowsky, Jesse Nading,  Emily Reasor , and Ankit Sood
• “ How COVID-19 is reshaping supply chains ,” November 23, 2021,  Knut Alicke ,  Ed Barriball , and Vera Trautwein
• “ Navigating the labor mismatch in US logistics and supply chains ,” December 10, 2021,  Dilip Bhattacharjee , Felipe Bustamante, Andrew Curley, and  Fernando Perez
• “ Coping with the auto-semiconductor shortage: Strategies for success ,” May 27, 2021,  Ondrej Burkacky , Stephanie Lingemann, and Klaus Pototzky

This article was updated in April 2024; it was originally published in August 2022.

Want to know more about inflation?

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How business operations can respond to price increases: A CEO guide

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Unpacking the Causes of Pandemic-Era Inflation in the US

After several decades of relatively low and stable inflation, in 2021 the US experienced a sharp rise in the pace of price increases. The annual inflation rate, as measured by the Consumer Price Index, was 1.7 percent in February 2021 but rose to more than 5 percent in June 2021. It continued rising for another year, peaking at about 9 percent in June 2022.

The rise in the inflation rate has been attributed to many factors. The US response to the COVID-19 pandemic included a series of federal initiatives, notably the CARES Act and the American Rescue Plan, which collectively authorized roughly $5 trillion in government spending. These programs contributed to strong consumer and business demand, which tightened labor markets (between mid-2021 and early 2022 the ratio of job vacancies to unemployed workers doubled), putting upward pressure on wages and prices.

Rising commodity prices and supply chain disruptions were the principal triggers of the recent burst of inflation. But, as these factors have faded, tight labor markets and wage pressures are becoming the main drivers of the lower, but still elevated, rate of price increase.

On the supply side, supply chain disruptions had an important inflationary impact, particularly in 2021 and 2022. The auto industry is a case in point. US auto production dropped from 11.7 million vehicles in July 2020, roughly the pre-pandemic rate, to less than 9 million in the fall of 2021, reflecting shortages of computer chips and other inputs. The combination of strong demand and supply chain bottlenecks led to further pressure on prices, particularly on prices of durable goods. Rising prices of food and energy added importantly to inflation. Notably, the crude oil market was disrupted by the Russian invasion of Ukraine in early 2022. The price of West Texas Intermediate crude oil rose from less than $70 per barrel in the late summer of 2021 to more than $100 per barrel for most of the period between March and July of 2022, pushing up gasoline prices and the costs of many industrial inputs.

The relative importance of these factors, and others, in contributing to US inflation that began in mid-2021 is an open question. In  What Caused the US Pandemic-Era Inflation?  (NBER Working Paper 31417),  Olivier J. Blanchard  and  Ben S. Bernanke  study the historical comovement of wages, prices, and inflation expectations in an effort to measure the relative contributions of the sources of the recent US inflation shock. They estimate the relationships between price inflation, wage inflation, commodity price shocks, shortages, and labor market tightness over the period from 1990 to the start of the pandemic, and then use their estimates to simulate the inflationary effects of the various shocks that buffeted the US economy from the beginning of 2020 to early 2023.

The researchers find that energy prices, food prices, and price spikes due to shortages were the dominant drivers of inflation in its early stages, although the second-round effects of these factors, directly through their effects on other prices or indirectly through higher inflation expectations and wage bargaining, were limited. The contribution of tight labor markets to inflation was initially quite modest. But as product market shocks have faded, the tight labor market and the resulting persistence in nominal wage increases have become the main factors behind wage and price inflation. This source of inflation is unlikely to recede without macroeconomic policy intervention.

— Leonardo Vasquez

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Inflation is no longer at a 40-year high but still stubborn: These are the items still expensive

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Key takeaways

• The current inflation rate is 3.5%, with shelter, motor vehicle insurance and energy the current main contributors.
• Prices have risen 20.4% since the pandemic-induced recession began in February 2020, with just 5% of the nearly 400 items the Bureau of Labor Statistics tracks cheaper today.
• The Federal Reserve is closely monitoring inflation and has raised interest rates to combat it, but the U.S. economy remains resilient — threatening to keep inflation elevated.

Prices aren’t rising as quickly as they once were, but the worst inflation crisis in 40 years is far from over.

Since February 2020, consumer prices have jumped 20.4 percent, a Bankrate analysis of Bureau of Labor Statistics data shows. That’s well above the historic average for a four-year period. For comparison, inflation rose 18.9 percent in the 2010s, 28.4 percent in the 2000s and 32.4 percent in the 1990s.

A little bit of inflation is good for consumers. The economy keeps growing and businesses continue expanding, hiring workers and bumping up their pay along the way. Too much inflation, however, feels akin to taking a pay cut . The post-pandemic price burst means Americans would need about $1,200 to buy the same goods and services that cost $1,000 when the coronavirus-induced recession occurred. High inflation has consequences beyond just affordability, complicating saving for emergencies or investing for retirement .

The latest reports from the consumer price index (CPI) — the ultimate scorecard for consumers wishing to track how much the goods and services they frequently buy are rising — have dashed experts’ hopes for a quicker-than-expected return to “goldilocks” inflation. Economists in Bankrate’s latest quarterly poll say there’s a risk that inflation could stay hot until 2026 .

Looking for the latest information on consumer prices? Here’s a round-up of where inflation is improving — and where it’s still remaining stubborn.

The lack of progress toward 2 percent inflation is now a trend. — Greg McBride, Bankrate Chief Financial Analyst

Highlights of the latest statistics on inflation

• Overall inflation in March 2024: 3.5%, up from 3.2% in February
• Core prices (excluding food and energy): 3.8%, no improvement from last month’s 3.8% increase
• Food away from home (dining out at restaurants): 4.2%, down from 4.5%
• Food at home (groceries): 1.2%, up from 1%
• Services: 5.3%, up from 5% in February
• Energy: 2.1%, up from -1.7% in February
• Gasoline: 1.3%, up from -3.9% in February
• Motor vehicle insurance: up 22.2%, up from 20.6% in February
• New vehicles: -0.1%, down from 0.4% in February
• Used cars and trucks: -1.9%, down from -1.4% in February

What is the current inflation rate?

Inflation rose 3.5 percent in March from a year ago, the sharpest increase since September, the latest Bureau of Labor Statistics report showed. Excluding the volatile food and energy categories, so-called core prices held at 3.8 percent in March.

The latest figures suggest that slowing inflation is now losing some momentum. Inflation hasn’t improved for 10 months, when the annual rate hit 3 percent for the first time in June 2023. Core prices have also begun moving sideways, barely improving from the 4 percent level they officially reached four months ago in October.

Taken together, however, inflation is still well below its peak in June 2022, when it smashed 9.1 percent.

Prices that are rising the most

Of the nearly 400 items that BLS tracks, more than 2 in 3 (or 67 percent) increased in price between March 2023 and 2024. Almost half (49 percent) picked up speed from the prior 12-month period and rose faster than the Fed’s preferred 2 percent target (45 percent).

According to BLS, these are the prices that increased most over the past year:

Month-over-month price changes can also give consumers a more real-time look at the prices that have recently been popping, though consumers should take seasonal variations into account. BLS doesn’t seasonally adjust all of its items, and year-over-year inflation rates can better smooth out those variations.

According to BLS, these are the prices that increased most over the past month:

Why is inflation so high right now?

Consumers might look at the massive 30.1 percent increase in video discs and other media — the largest increase ever — and wonder why the overall inflation rate is just 3.5 percent. To put it simply, the Bureau of Labor Statistics assigns weights to each individual good or service it tracks, based on how prevalent it’s considered to be in a consumer’s monthly budget.

Currently, the largest contributors to inflation are shelter, motor vehicle insurance and energy.

• Taken together, energy and shelter were responsible for more than half of the monthly 0.4 percent increase in prices between February and March 2024, BLS said.
• Over the past 12 months, shelter has accounted for more than half (56 percent) of the increase in prices. Put another way, if shelter had remained stable, prices would have only risen 1.5 percent from a year ago.
• Over the past 12 months, inflation would have risen just 2.9 percent had motor vehicle insurance costs remained stable.

The drivers of inflation have changed dramatically since the initial post-pandemic price burst. When price pressures peaked in June 2022, shelter was driving just 20 percent of the annual increase in prices. But as consumers emerged from lockdowns with massive pent-up demand at the same time as global supply shortages, energy was driving about a third (32 percent) of inflation, while food prices were driving 15 percent of inflation.

The changing drivers of inflation have evolved as much as the U.S. economy. Supply chains have untangled since the pandemic, helping take the pressure off of goods inflation. However, services such as rent, insurance and even the price of dining out can take months, if not years, to fluctuate — depending on what’s happening with labor costs and consumer spending.

To combat inflation, officials on the Federal Reserve have lifted borrowing costs from a rock-bottom level of near-zero percent to a 23-year high of 5.25-5.5 percent. Yet, the U.S. economy has remained surprisingly resilient, underpinned by a job market with an unemployment rate below 4 percent for the longest stretch of time since the 1960s.

“Rapidly rising housing costs continue to be the economy’s Achilles’ heel and the inventory crunch brought about by mortgage rate hikes isn’t exactly helping,” says Julia Pollak, chief economist at ZipRecruiter. “While we are seeing deflation in core goods prices, it is simply not enough to offset the enduring heat in services inflation.”

Post-pandemic inflation: What’s risen the most and what’s gotten cheaper

Of the nearly 400 items BLS tracks, just 19 (or roughly 5 percent) are cheaper today than they were pre-pandemic. More than 2 in 5 (45 percent) of those items rose at a faster clip than overall inflation.

To be sure, prices are expected to rise in the healthiest of economies — though only gradually, at a goalpost of around 2 percent a year.

According to BLS, these are the top 10 items that have jumped the most in price since the pandemic:

Meanwhile, the items that have dropped in price the most since the pandemic are primarily goods and electronics — largely thanks to improving supply chains.

Inflation breakdown by product category

Looking for an easy analysis of how inflation is impacting the key items in your budget? Here’s what Bankrate found.

Over the past 12 months, gasoline prices have risen 1.3 percent, well below the peak jump of 59.9 percent in June 2022 but still the first year-over-year increase since September 2023. Those recent gains have been evident at the pump: Fuel prices have increased across all 50 states over the past month, AAA data shows. Taken together, prices at the pump are still 34.8 percent more expensive than they were in February 2020.

Grocery prices (formally known as food at home) rose 1.2 percent from a year ago and are still 25.2 percent more expensive than they were before the pandemic, BLS data indicates. At their peak, grocery prices soared 13.5 percent in July 2022 from a year ago.

Of the major shopping categories:

• Meats: up 3.4 percent over the past year and 26.5 percent since February 2020
• Fish and seafood: down 2.6 percent from a year ago but still up 16 percent since the start of the pandemic-induced recession
• Dairy: down 1.9 percent over the past year but still 18.9 percent more expensive since the pandemic
• Fruits and vegetables: up 2 percent over the past year but 18.2 percent more expensive than before the pandemic
• Sugar and sweets: up 4.3 percent from a year ago and 28 percent since the pandemic

Meanwhile, the price of dining out (formally known as full service meals and snacks) jumped 4.2 percent from a year ago, capping off a 25.8 percent increase since the pandemic.

Rent has become one of the most costly categories of a consumer’s budget.

Rent of primary residence in March jumped 5.7 percent from a year ago, BLS data shows. To be sure, rent prices aren’t rising as quickly as they once were, at one point surging 8.8 percent over a 12-month period back in March and April 2023. Yet, Americans who’ve had to sign new leases since the outbreak are feeling the pinch: Rent is up 22.6 percent since the pandemic.

Real-time measures show that rents aren’t rising as quickly as they were at the height of post-pandemic lockdowns, though a sharper slowdown hasn’t yet been reflected in the official BLS monthly report. One reason could be because of lags, even longer than usual for shelter prices as leases and housing agreements take longer to roll over from the previous year. Another could simply be because homes have stayed pricey , keeping more renters on the sidelines than usual.

Inflation hasn’t just made the prices of key household essentials — but the costs of vacations and travel, too. Airline ticket prices, for example, once soared as much as 43 percent from a year ago in September 2022.

Those prices are finally starting to level off, though a resurgence in fuel and energy costs could jeopardize that slowdown in prices.

• Airfares: down 7.1 percent from a year ago and 0.3 percent cheaper since February 2020
• Car and truck rental: down 8.8 percent from a year ago but up 24.5 percent since the pandemic
• Hotels and motels (lodging away from home): down 2.4 percent from last year but 13.8 percent more expensive than before the pandemic

Car ownership

Owning a car has been especially pricey since the pandemic, from the cost of the car itself and the interest rates that finance it to the repair and insurance costs required for upkeep.Making car inflation hard to escape, the majority of households (roughly 92 percent) owned at least one car in 2022, according to the Census Bureau.

• Motor vehicle insurance: up 22.2 percent from a year ago and 43.5 percent since the start of the pandemic in 2020
• Vehicle repair: up 11.6 percent from a year ago and 45.7 percent since February 2020
• New vehicles: down 0.1 percent since March 2023 but still 20.7 percent more expensive since February 2020
• Used vehicles: down 1.9 percent since March 2023 but 30.2 percent more expensive
• Leased vehicles: up 1.1 percent from a year ago and 39.4 percent since the start of the pandemic

The different methods of measuring inflation: PCE versus CPI

• Overall inflation in March 2024: 2.7% from a year ago, up from the 2.5% pace in February
• Core prices (excluding food and energy): 2.8% from a year ago, matching last month’s 2.8% annual pace
• Food prices: up 1.5% from a year ago, up from 1.3% in February
• Services: up 4% from a year ago, up slightly from 3.9% in February
• Energy: up 2.6% from a year ago after dropping 2.3% in February

Fed policymakers look at the full picture of economic data when setting interest rates. But officially, they prefer a different measure to see whether they’re succeeding at controlling inflation: the Department of Commerce’s personal consumption expenditures (PCE) index.

But that preference has been keeping Fed watchers on their toes. Lately, the PCE index has been indicating slower inflation, with overall prices just half a percentage point above the Fed’s target — compared to a hotter 1.5 percentage points as shown with CPI.

Those variations have always been afoot. Mainly, they’re because of methodology differences . For starters, PCE takes consumers’ substitutions into account (for example, one family’s decision to buy fish over meat for one month because it’s cheaper).

But another key difference is to blame lately. Both agencies estimate an item’s relative importance differently, with BLS’ gauge giving the most weight to the category of inflation that’s coincidentally been the hottest: shelter.

For Fed officials, the story remains largely the same: Inflation is slowing but still stubbornly above their 2 percent goalpost. Yet, when officials do decide to change policy — including cutting interest rates — the variations could make the decision trickier. Fed officials don’t want to risk cutting interest rates too soon, for fear that it could stoke even higher inflation if it causes demand to rise again.

“While this report is not what the Fed wants to see, most of the inflationary gains are concentrated in housing and car insurance, sectors that are expected to calm down eventually,” says Tuan Nguyen, U.S. economist at RSM. “It’s reasonable to expect that inflation could start going down again in the next month or two.”

Takeaways for consumers

For consumers, the message is clear: Inflation has cooled dramatically since peaking in the summer of 2022, though it remains undefeated. The ultimate question now is whether the U.S. economy’s resilience is keeping inflation elevated . If it is, the Fed might need to slow the financial system down more to finish the job, ultimately risking consumers’ paychecks and employment if it dents the robust job market.

• Expect higher-for-longer rates from the Fed: Fed Chair Jerome Powell has said that officials need to cut interest rates long before prices hit 2 percent on an annual basis. If they don’t, they risk slowing the economy down too much for too long. Yet, officials say they need more confidence that inflation is retreating back to their target, meaning interest rates are likely to remain high — keeping borrowing costs expensive but savings yields lucrative.
• Comparison shop as much as you can : Consumers know to compare offers from multiple lenders before locking in a loan. Why not the same for the items you buy on a regular basis? Comparison shopping can help make sure you’re buying the cheapest product on the market. Compare prices at multiple retailers, see if any stores offer price match and craft a budget. If a product or ingredient pushes your spending goal over the edge, consider swapping it out for something else.
• Use the personal finance tools at your disposal: Finding the right credit card that helps you earn rewards on the purchases you were already going to make can be another way to pad up your wallet. Just be sure you’re not carrying a balance. A 20.75 percent interest rate will never outweigh the cash back .
• Save for emergencies and find the right account: Historically, investing in the markets has been the best way to beat inflation, but today’s high-rate era means savers can find a market-like return without any of the risk . Stash your cash in a high-yield account or add a longer-term CD to your portfolio, so you can lock in these elevated yields for the long haul.

See how all items BLS regularly tracks have changed over time

Methodology.

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Fed’s new inflation targeting policy seeks to maintain well-anchored inflation expectations

April 06, 2021

The 2007–09 global financial crisis packed an economic punch that led the Federal Reserve to its first-ever monetary policy framework review. The Fed concluded this effort by announcing a major change in its monetary policy strategy—moving from what has been described as flexible “inflation targeting” to flexible “average inflation targeting.”

The change reflects lessons learned over time and from other countries and represents an evolution of the framework to better adapt monetary policy to the challenges of a low-inflation, low-interest-rate environment.

Monetary policy evolution

The Federal Open Market Committee (FOMC) lowered its policy rate—the federal funds rate—to near zero in response to the financial crisis. It also decided to keep an “ample” level of reserves in the banking system, changing the way monetary policy guides the federal funds rate . The Fed also expanded its toolkit and communication practices with balance-sheet policies supported by forward guidance. Forward guidance refers to a commitment by the central bank on the future path of the policy rate.

The FOMC issued its first statement of longer-run goals and policy strategy in 2012 and subsequently amended it in 2019. That statement included the Fed’s first explicit commitment to an inflation rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures (PCE). That strategy is often referred to as flexible inflation targeting.

The changing U.S. economy

The Fed’s most recent (2019–20) review of its monetary policy framework (strategy, policy tools and communication practices) was motivated by growing awareness of structural transformations of the economy, including diminished sensitivity of inflation to resource slack.

This is not just a U.S. phenomenon; countries around the world have had similar experiences. Recent research suggests the downward drift in longer-term inflation expectations and the disinflationary pressures arising from diminishing pricing power and globalization have been important factors holding down inflation.

Downloadable chart | Chart data

The decline in the natural rate is a worldwide phenomenon resulting from population aging, slowing productivity growth and globalization.

A decline in the natural rate reduces the space to stimulate the U.S. economy through cuts in the federal funds rate, leaving the Fed more reliant on other policy tools such as balance sheet policies and forward guidance. The likelihood of being constrained by the effective lower bound—that is, when interest rates cannot fall below zero—is greater in low-interest-rate environments.

The Fed’s strategy change, acknowledging a new environment

Fed Chair Jerome Powell announced the more significant changes resulting from the Fed’s monetary policy framework review on Aug. 27, 2020.

The statement of longer-run goals and policy strategy explicitly acknowledges the challenges posed by the proximity of interest rates to the effective lower bound. By reducing the Fed’s scope to support the economy through interest rate cuts, the lower bound increases downward risks to employment and inflation. The statement also highlights that the Fed is prepared to use its full range of tools to achieve its dual-mandate objectives—stable prices and maximum sustainable employment.

Notably, the Fed changed its language on inflation, replacing its 2 percent inflation target commitment, and instead said it will “[seek] to achieve inflation that averages 2 percent over time.”

This change is a substantial departure from the previous flexible inflation-targeting regime. Monetary policy under inflation targeting was symmetric—the Fed would equally respond to overshooting and undershooting of the target. The Fed lets “bygones be bygones,” since it does not attempt to make up for past inflation deviations from target.

By comparison, average inflation targeting means that policymakers would consider those deviations and can allow inflation to modestly and temporarily run above the target to make up for past shortfalls, or vice versa .

How monetary policy could change

Based on an estimated medium-scale structural model of the U.S. and global economies , we explore how inflation would have behaved had the Federal Reserve adopted a regime of flexible average inflation targeting from 1986 (following a period of high U.S. inflation) to 2019 ( Chart 2 ).

The behavior of households and firms is modeled at the individual level, with agents fully informed and rational. In our counterfactual scenario—in which policymakers react to two-year-average inflation rather than to contemporaneous inflation alone—key structural parameters on preferences and technology remain unchanged at their estimated values. We assume the economy is hit with the same sequence of domestic and foreign shocks (including monetary ones).

Our counterfactual analysis suggests that, if long-run inflation expectations had remained as observed in the data, the cyclical part of U.S. inflation would have been only 0.1 percentage points higher on average under average inflation targeting than what occurred under the previous monetary policy regime.

This finding does not explicitly consider the intent of policymakers. Monetary policy implementation could also have been different (perhaps even more aggressive at providing accommodation) under the average inflation targeting regime.

Staying well-anchored around long-run expectations is arguably an important rationale for average inflation targeting. We also do not explicitly consider that if long-run inflation expectations had firmed up in this counterfactual, it would have likely resulted in higher overall realized inflation.

Why ‘Average Inflation Targeting’ Then?

When aggregate demand shocks drive the economy to the effective lower bound, theory suggests that the cumulative effect also puts sustained downward pressure on inflation. The concern is that below-target inflation outcomes may become entrenched in lower, below-target inflation expectations. This would pose a challenge to the Fed in meeting its dual-mandate goals.

There might be a number of plausible long-run outcomes for the economy. One is consistent with monetary policy implemented in the U.S. since the ‘80s, after inflation was tamed and inflation expectations became anchored around the Fed’s target. Another possible outcome is the low-nominal-interest-rate, deflationary regime observed in Japan during the same period ( Chart 3 ). Average inflation targeting allows policy space for the Fed to “make up” for lost inflation to sustain the former equilibrium.

By adopting average inflation targeting, the Fed is communicating that 2 percent is not a ceiling for inflation and that it may let inflation exceed 2 percent modestly and temporarily to make up for past low inflation. The key aim of this policy shift is anchoring inflation expectations.

Monetary Policy Continues to Evolve

The Fed’s evolving understanding of the economy and its reassessment of the natural rate of interest have led to arguably the most significant policy change since 2012. The new strategy of flexible average inflation targeting provides more flexibility to pursue the central bank’s maximum employment and price stability mandates in the current low-interest-rate environment.

It also reinforces the importance of keeping U.S. inflation expectations well-anchored. However, as our understanding of monetary policy transmission and the economy evolves, the Fed will become challenged anew and will continue adapting to achieve broad-based growth consistent with its long-run inflation target.

About the Authors

Enrique Martínez-García

Martínez-García is a senior research economist and advisor in the Research Department at the Federal Reserve Bank of Dallas.

Jarod Coulter

Coulter is a research analyst in the Research Department at the Federal Reserve Bank of Dallas.

Valerie Grossman

Grossman is a researcher and the web content manager in the Research Department at the Federal Reserve Bank of Dallas.

The views expressed are those of the authors and should not be attributed to the Federal Reserve Bank of Dallas or the Federal Reserve System.

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The Fed’s Favorite Inflation Index Remained Stubborn in March

Hopes for substantial cuts in interest rates are fading as inflation shows more staying power than expected.

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By Jeanna Smialek

The Federal Reserve’s most closely watched inflation measure remained stubborn in March, the latest evidence that price increases are not fading as quickly as policymakers would like, and another reason that interest rates may stay higher for longer.

Investors came into 2024 hopeful that Fed officials would cut rates substantially this year, but those hopes have been fading as inflation has shown much more staying power than expected. Wall Street increasingly sees lower rates coming much later in the year, if the Fed manages to cut them at all.

The latest Personal Consumption Expenditures index reading could keep the Fed on a cautious path as it considers when to lower borrowing costs.

The overall inflation index rose by 2.7 percent in the year through March, up from 2.5 percent in February and slightly more than economists had expected.

Fed officials typically keep a close eye on a measure that strips out food and fuel costs, both of which are volatile, to get a sense of the underlying inflation trend. That “core” measure increased by 2.8 percent on an annual basis, in line with its February reading.

Inflation was coming down steadily in late 2023, but in recent months progress has stalled. That has left policymakers reassessing how soon and how much they might be able to cut borrowing costs. Jerome H. Powell, the Fed chair, signaled last week that central bankers were not seeing the progress that they were hoping to witness before lowering rates.

If inflation continues to hover above the Fed’s 2 percent target, it could prod officials to keep interest rates high for an extended time. Policymakers raised interest rates to 5.33 percent between March 2022 and last summer, and have held them at that level since. They think that is high enough to eventually weigh on the economy — in economics parlance, it is “restrictive.”

But some economists have begun to question just how restrictive it is, because growth has remained solid and hiring rapid even after months of relatively high rates.

Data released Friday showed that momentum continued in March: Consumer spending rose 0.8 percent for the second consecutive month, ahead of forecasters’ expectations. Americans’ after-tax income continued to rise faster than prices.

Given the momentum, some economists are wondering if Fed officials could begin to contemplate raising rates again.

Fed governor Michelle Bowman has already said that while it was not her “base line outlook” she saw “the risk that at a future meeting we may need to increase the policy rate further.”

For now, though, markets have simply pushed back their expectations for rate cuts. Investors are betting that the Fed might make its first move in September or later, based on market pricing , though a growing share think that it may not manage to cut rates at all this year.

Jeanna Smialek covers the Federal Reserve and the economy for The Times from Washington. More about Jeanna Smialek

A Global Database of Inflation

April 2024 version -- data updated to 2023

The World Bank’s Prospects Group has constructed a global database of inflation. The database covers up to 209 countries over the period 1970-2023, and includes six measures of inflation in three frequencies (annual, quarterly, and monthly):

• Headline consumer price index (CPI) inflation
• Food CPI inflation
• Energy CPI inflation
• Core CPI inflation
• Producer price index inflation
• Gross domestic product deflator

The database also provides aggregate inflation for global, advanced-economy, and emerging market and developing economies as well as measures of global commodity prices.

The  research paper , by Jongrim Ha, M. Ayhan Kose, and Franziska Ohnsorge, provides detailed information on the database and shows three potential applications of the database: the evolution of global inflation since 1970, the behavior of inflation during global recessions, and the role of common factors in explaining movements in different measures of inflation.

Data Download

The inflation data are available for download in  Excel  and  Stata . The commodity price data are available  here . The database is updated twice a year. 

When using the data, please cite the following paper as the data source: Ha, Jongrim, M. Ayhan Kose, and Franziska Ohnsorge (2023). "One-Stop Source: A Global Database of Inflation."  Journal of International Money and Finance 137 (October): 102896.

The findings, interpretations, and conclusions expressed in the working paper are entirely those of the authors. They do not necessarily represent the views of the World Bank and its affiliated organizations.

For more information, please contact Jongrim Ha ([email protected]).

Inflation data (Excel)

Inflation data (Stata, zip)

Commodity price data (zip)

Other Studies on Inflation

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The Inflation Plateau

Prices have been rising faster than expected for the past three months. What’s going on?

Just a few months ago, America seemed to have licked the post-pandemic inflation surge for good. Then, in January, prices rose faster than expected. Probably just a blip. The same thing happened in February. Strange, but likely not a big deal. Then March’s inflation report came in hot as well. Okay—is it time to panic?

The short answer is no. According to the most widely used measure, core inflation (the metric that policy makers pay close attention to because it excludes volatile prices such as food and energy) is stuck at about 4 percent, double the Federal Reserve’s 2 percent target. But that’s a long way from the crisis of 2022, when core inflation peaked at nearly 7 percent and the price of almost everything was going up dangerously fast. Instead, we seem to be facing a last-mile problem: Inflation has mostly normalized, but wringing out the final few percentage points in a handful of categories is proving harder than expected. There are two conflicting views of what exactly is going on, each with drastically different implications for how the Federal Reserve should respond. One camp worries that the Fed could lose control of inflation all over again; the other fears that the central bank will—whoops— unnecessarily bring the U.S. economy to its knees.

The “vanishing inflation” view is that today’s still-rising prices reflect a combination of statistical quirks and pandemic ripple effects that will almost surely resolve on their own. This camp points out that basically all of the current excess inflation stems from auto insurance and housing. The auto-insurance story is straightforward: Car prices spiked in 2021 and 2022, and when cars get more expensive, so does insuring them. Car inflation yesterday leads to car-insurance inflation today. That’s frustrating for drivers right now, but it carries a silver lining. Given that car inflation has fallen dramatically over the past year, it should be only a matter of time before insurance prices stabilize as well.

Annie Lowrey: Inflation is your fault

Housing, which made up a full two-thirds of excess inflation in March, is a bit more complicated. You might think that housing inflation would be calculated simply by looking at the prices of new homes or apartments. But for the majority of Americans who already own their home, it is calculated using a measure known as “owners’ equivalent rent.” Government statisticians try to determine how much money homeowners would reasonably charge for rent by looking at what people in similar homes are paying. This way of calculating housing prices has all kinds of flaws. One issue is that inflation data are calculated monthly, but most renters have one- or two-year leases, which means the official numbers usually lag the real housing market by a year or more. The housing market has cooled off considerably in the past year and a half, but the inflation data are still reflecting the much-hotter market of early 2023 or late 2022. Sooner or later, they too should fall. “The excess inflation we have left is in a few esoteric areas that reflect past price increases,” Ernie Tedeschi, the director of economics at Yale’s Budget Lab, told me. “I’m not too worried about inflation taking off again.”

The “hot wages” camp tells a very different story. Its members note that even as price increases appeared to be settling back down at the beginning of 2024, wages were still growing much faster than they did before the pandemic. When wages are rising quickly, many employers, especially those in labor-intensive service industries, raise prices to cover higher salary costs. That may show up in the data in different ways—maybe it’s groceries one month, maybe airfares or vehicle-repair costs another month—but the point is that as long as wages are hot, prices will be as well. “The increase in inflation over the last three months is higher than anything we saw from 1992 to 2019,” Jason Furman, the former director of Barack Obama’s Council of Economic advisers, told me. “It’s hard to say that’s just some fluke in the data.”

Adherents of the “vanishing inflation” idea don’t deny the importance of wages in driving up prices; instead, they point to alternative measures that show wage growth closer to pre-pandemic levels. They also emphasize the fact that corporate profits are higher today than they were in 2019, implying that wages have more room to grow without necessarily pushing up prices.

Although this dispute may sound technical, it will inform one of the most pivotal decisions the Federal Reserve has made in decades. Last year, the central bank raised interest rates to their highest levels since 2001, where they have remained even as inflation has fallen dramatically. Raising interest rates makes money more expensive for businesses and consumers to borrow and, thus, to spend, which is thought to reduce inflation but can also raise unemployment. This leaves the Fed with a tough choice to make: Should it keep rates high and risk suffocating the best labor market in decades, or begin cutting rates and risk inflation taking off again?

If you believe that inflation is above all the product of strong wage growth, then cutting interest rates prematurely could cause prices to rise even more. This is the view the Fed appears to hold. “Right now, given the strength of the labor market and progress on inflation so far, it’s appropriate to allow restrictive policy further time to work,” Fed Chair Jerome Powell said in a Q&A session following the release of March’s inflation data. Translation: The economy is still too hot, and we aren’t cutting interest rates any time soon.

Michael Powell: What the upper-middle class left doesn’t get about inflation

If, however, you believe that the last mile of inflation is a product of statistical lags, keeping interest rates high makes little sense. In fact, high interest rates may paradoxically be pushing inflation higher than it otherwise would be. Many homeowners, for instance, have responded to spiking interest rates by staying put to preserve the cheap mortgages they secured when rates were lower (why give up a 3 percent mortgage rate for a 7 percent one?). This “lock-in effect” has restricted the supply of available homes, which drives up the prices.

High rates may also be partly responsible for auto-insurance costs. Insurance companies often invest their customers’ premium payments in safe assets, such as government bonds. When interest rates rose, however, the value of government bonds fell dramatically, leaving insurers with huge losses on their balance sheets. As The New York Times ’s Talmon Joseph Smith reports , one reason auto-insurance companies have raised their premiums is to help cover those losses. In other words, in the two categories where inflation has been the most persistent, interest rates may be propping up the exact high prices that they are supposed to be lowering.

The Fed’s “wait and see” approach comes with other risks as well. Already, high rates have jacked up the costs of major life purchases, made a dysfunctional housing market even more so, and triggered a banking crisis. They haven’t made a dent in America’s booming labor market—yet. But the longer rates stay high, the greater the chance that the economy begins to buckle under the pressure. Granted, Powell has stated that if unemployment began to rise, the Fed would be willing to cut rates. But lower borrowing costs won’t translate into higher spending overnight. It could take months, even years, for them to have their full effect. A lot of people could lose their jobs in the meantime.

Given where inflation seemed to be headed at the beginning of this year, the fact that the Federal Reserve finds itself in this position at all is frustrating. But given where prices were 18 months ago, it is something of a miracle. Back then, the Fed believed it would be forced to choose between a 1970s-style inflation crisis or a painful recession; today it is deciding between slightly higher-than-typical inflation or a somewhat-less-stellar economy. That doesn’t make the central bank’s decision any easier, but it should perhaps make the rest of us a bit less stressed about it.

Support for this project was provided by the William and Flora Hewlett Foundation.

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We, the voters

Why experts say inflation is relatively low but voters feel differently.

Ailsa Chang

A report from Purdue University found that a majority of consumers expect food prices to keep rising in the coming year, which could sour voter sentiment. Scott Olson/Getty Images hide caption

A report from Purdue University found that a majority of consumers expect food prices to keep rising in the coming year, which could sour voter sentiment.

A lot goes into planning a personal budget – and the price of food and how it fluctuates with inflation can be a big part of that.

According to the U.S. Department of Agriculture, food prices rose by 25 percent from 2019 to 2023 . And a report from Purdue University found that a majority of consumers expect food prices to keep rising in the coming year .

Are food prices as bad as consumers think?

All Things Considered host Ailsa Chang spoke with Joseph Balagtas, a professor of agricultural economics at Purdue University and the lead author of that report.

This interview has been lightly edited for length and clarity.

Ailsa Chang: The majority of consumers are predicting rising food prices. And, yeah, we definitely saw a hike in food prices during and after the pandemic. But what is actually happening right now with food and grocery prices? Are things as bad as some consumers fear?

Joseph Balagtas: So the Bureau of Labor Statistics just two weeks ago released its latest inflation data from the Consumer Price Index [CPI]. Food prices in March were 2.2 percent higher than they were in March 2023. So a 2.2 percent increase in food prices over the past year.

Chang: And how bad is that?

Balagtas: That is relatively low. Low relative to the food price inflation that we've seen over the past two years. Food price inflation peaked in the summer of 2022 at about 10 or 11 percent per year, and has been coming down regularly, has been under three percent in 2024 and is at its lowest point – 2.2 percent – that we've seen since [the] end of 2021.

Chang: Yeah. And it being 2024 now, an election year, your report also looked at how people's political leanings affect their view of inflation. I'm so curious what you saw there.

Balagtas: Yeah. So we asked people in our monthly survey to tell us how food prices have changed over the past year. And it gives us a measure of perceived inflation that we could compare to the CPI. And interestingly, for the last eight months, consumers have been reporting price inflation in the range of six and seven percent, well above what food price inflation has been, according to the CPI.

Chang: And how did that pessimism break down according to political affiliation?

Balagtas: It's not only a political issue. Both Democrats and Republicans tell us if inflation is higher over the last year than what we're seeing in the CPI. But Republicans are reporting an inflation that's ... one percentage point and a half higher than Democrats. So Republicans are telling us 7.3 percent higher, Democrats 5.7 percent higher.

Why beating inflation is turning out to be as hard as losing weight

Chang: Okay. Regardless, though, both sides are overstating food inflation. Why do you think that is? Why do you think consumers across the board seem to be overestimating how much food prices are going up?

Balagtas: It could be that consumers – they're not measuring prices relative to exactly a year ago, which is what the Bureau of Labor Statistics does when it reports 2.2 percent inflation. So they might be looking at a longer time horizon. They might be thinking back to a time, you know, "remember when egg prices were such-and-such". We don't necessarily live in one month and 12 month increments like the CPI is reported.

Chang: And how much do you sense food prices drive the way voters actually vote?

Balagtas: Yeah, well, so I think the economy in general affects presidential elections. I think good economic conditions help the incumbent, bad economic conditions harm the incumbent. You know, we haven't seen food price inflation like this in an election year in some time. And so I'm not quite sure how to predict how that would be. But I think if price inflation in general were to increase again over the coming six months, I think that'd be bad for the incumbent.

Federal Reserve chair signals interest rate cuts may be delayed, cites stubborn inflation

Chang: And as we get closer and closer to November, do you expect food prices specifically to be a major thing that all the candidates will be talking about?

Balagtas: I'd say that most of the drivers of higher food prices have gone away. The one that's lingered is high labor costs. And so we see sustained higher prices or faster inflation in items that are labor intensive, including restaurant meals and packaged foods. So we're going to see higher food prices in some items. I don't think – and I certainly don't hope – that we return to the fast food price inflation that we saw last year or the year before.

The radio version of this piece was produced by Elena Burnett and edited by William Troop.

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Inflation: Four Questions Requiring Further Research to Inform Monetary Policy

I appreciate the opportunity to present closing remarks at the Inflation: Drivers and Dynamics Conference. The views I present will be my own and not necessarily those of the Federal Reserve System or of my colleagues on the Federal Open Market Committee.

Let me start by thanking the organizers at the Federal Reserve Bank of Cleveland and the European Central Bank for putting together such a strong program and the ECB for its hospitality. It has been a very productive two days focused on frontier research on inflation. High inflation has been the major challenge facing many central banks over the past two years. Returning the economy to price stability in a sustainable and timely way has driven monetary policy decisions.

The U.S. Economy

In the U.S., since early last year, the Federal Reserve has been tightening the stance of monetary policy. We have raised the target range of the federal funds rate by 5-1/4 percentage points. We are also reducing the size of the Fed’s balance sheet by allowing assets to roll off in a systematic way according to the plan announced in May 2022, which also helps to firm the stance of monetary policy. The tightening of monetary policy has led to a broader tightening in financial conditions. Banks, which play an important part in monetary policy transmission, have been tightening their credit standards, making credit less available to businesses and households. In addition, Treasury yields, mortgage rates, and credit spreads have risen.

The monetary policy actions taken to date are helping to moderate demand in both product and labor markets and to alleviate some of the imbalances that have contributed to price pressures. Real output growth has slowed from its robust pace in 2021. Supply is also adjusting, with disruptions in supply chains having generally improved over time. In the labor market, some progress is being made in bringing demand and supply into better balance, but the job market is still strong. Job growth has slowed and job openings are down, but the unemployment rate is low, at 3.8 percent, and the vacancy-to-unemployment ratio is still above its level during the strong labor market conditions in 2019. Labor supply conditions are helping to rebalance the labor market; the labor market participation rate of workers between the ages of 25 and 54 is above what it was before the pandemic.

Progress continues to be made on inflation, with total PCE inflation down significantly from its peak. Underlying measures of inflation have also improved but less so. Despite high inflation rates, medium- and longer-term inflation expectations remain reasonably well-anchored in a range consistent with the Fed’s goal of 2 percent inflation. Although there has been some progress, inflation remains too high. The FOMC is committed to moving inflation down to 2 percent. The monetary policy questions are whether the current level of the federal funds rate is sufficiently restrictive and how long policy will need to remain restrictive to keep inflation moving down in a sustainable and timely way to our goal of 2 percent. Future policy decisions will be about managing the risks and the intertemporal costs of over-tightening vs. under-tightening monetary policy. This assessment will require close monitoring of economic, banking, and financial market developments and using all of that economic reconnaissance to determine whether the economy is evolving in line with the outlook or not. The outlook will need to be informed not only by the incoming data but also by our models of and understanding of inflation dynamics, which has been the topic of this conference.

Inflation Research

The period of high inflation has highlighted that there are many things we do understand about inflation. In particular, when demand is outpacing supply, in an environment of very accommodative fiscal and monetary policy – the conditions that characterized the economy in 2021 after the pandemic-induced shutdown – inflation will begin to rise and it will remain persistent until monetary policy is recalibrated to moderate demand. Nonetheless, making such assessments in real time is difficult, especially when supply conditions are not stable, and forecasting inflation remains challenging. Indeed, FOMC participants underestimated inflation for much of the high-inflation period. But policymakers are required to make decisions based on the available, albeit limited information.

Further research is needed on many facets of inflation and inflation dynamics. Since I am in a room full of researchers, I want to highlight some of the questions whose answers would help inform monetary policy decisions. I took the same route when I presented keynote remarks at this conference in 2014, and it turns out that several of the questions I asked are still relevant. 1 Don’t be too discouraged: Progress has been made in addressing them. But the period of high inflation and structural changes to the economy during the pandemic and its aftermath have presented new questions and different takes on old questions. Further research will be needed to answer these questions, furthering our understanding of inflation as an aid to monetary policymaking.

Research Questions

The first question I asked in 2014 remains relevant: How can we best estimate the underlying trend in inflation?

Monetary policymakers are charged with keeping inflation at its longer-run goal and monetary policy affects the economy with long and variable lags. Both factors mean that policymakers need to be able to forecast inflation over the medium and longer run. So they need a method to separate temporary changes from changes that are more persistent. When the economy reopened after the pandemic-induced shutdown, U.S. monetary policymakers attributed much of the increase in inflation to supply shocks that were expected to be transitory, with inflation expected to return to its low pre-pandemic trend. It took some time and repeated under-forecasts of inflation for policymakers to realize that the conditions for high inflation were in place and that aggressive policy action was required. Better understanding of the factors that affect the medium-run inflation trend and ways to separate temporary changes from changes that are more persistent would have helped to avoid the situation.

Separating temporary from more persistent factors is challenging to do in real time, not only because some of the inflation data get revised (including the PCE inflation measure that the Fed targets), but also because measured inflation reflects a combination of factors: idiosyncratic factors, broader but temporary macroeconomic factors, and more persistent movements that affect the underlying inflation trend. One approach to estimating the underlying trend is to remove items that are often the sources of temporary movements in inflation. The traditional core measures of inflation in the U.S. exclude the prices of food and energy because they are thought to be very volatile. Another approach recognizes that other components can show more volatility than food and energy and derives measures that exclude components with the most extreme movements each month. The median and trimmed-mean inflation rates are of this type. 2 Some papers have shown that these types of measures can help to identify the underlying trend and may outperform measures of core inflation in forecasting total (aka headline) inflation. 3

There are also statistical models that try to isolate the trend from the noise and identify the cyclical and acyclical components of core inflation, where the cyclical components are, by definition, those associated with labor market tightness. 4

The literature has not discerned a best way to isolate the inflation trend; so, in practice, to forecast inflation, policymakers tend to look at all the measures of inflation, data on the real side of the economy, anecdotal reports from community and business contacts, and various models. Many of the forecasting models being used are informed by theoretical models of inflation dynamics.

Which brings me to my second question : Can we reconcile the actual pricing behavior of firms with predictions from the New Keynesian model, the workhorse inflation model used by many central bank economists?

In recent years, a considerable amount of research has examined the real-world pricing behavior of firms and incorporated these facts into macroeconomic models. 5 In fact, several papers presented at the conference explicitly incorporate micro data into macro models. 6 I view this as a continuation of the desirable approach of ensuring that our macro models are based on sound micro foundations.

The availability of data on individual prices has made advances possible. New surveys are also being used to better understand firms’ pricing behavior. For example, a survey conducted by researchers from the Cleveland, Atlanta, and New York Feds found that firms’ prices are strongly influenced by their perceptions about demand for their products, a desire to maintain steady profit margins, and their labor costs. 7 The paper based on the survey, and included in the conference’s poster session, estimates that cost-price passthrough at firms was about 60 percent on average, but that there was considerable heterogeneity across the firms. Interestingly, although firms do tend to raise their prices when wages rise, other research from the Cleveland Fed indicates that consumers do not expect their wage growth to keep up with inflation. The researchers find that a 1 percentage point increase in inflation expectations causes expectations of income growth to rise by only two-tenths of a percentage point; in other words, respondents expect rising inflation to hurt their real income. This might help to explain why people dislike high inflation even when the labor market is strong. 8

Research such as this can help to close the gap between the macro models we use to inform our monetary policy decisions and the microeconomic data. In addition, research on actual pricing behavior can also inform the framework for setting monetary policy. For example, at first blush it might seem that having a higher inflation target, all else equal, gives monetary policymakers more room to move the nominal interest rate down before hitting the effective lower bound; they could then provide more stimulus to the economy, if needed. But Cleveland Fed research suggests that all else would not be equal. 9 In particular, a higher inflation target would not provide as much policy room as one might expect; raising the inflation target would be subject to the Lucas critique. With higher steady-state inflation, firms would change their price-setting behavior and adjust their prices more frequently. Because monetary policy’s ability to affect real activity depends on the degree of price stickiness, a higher inflation target would make monetary policy less effective because firms would be changing their prices more frequently. The research’s quantitative result suggests that to increase policy space by 2 percentage points, instead of increasing the inflation target from 2 percent to 4 percent, one would need to increase the target to 5 percent. If you add to this the costs of having to change posted prices more often, the higher level of relative price distortions because everything is not indexed, higher shoe-leather costs from searching for the lowest prices, and the higher inflation volatility associated with higher inflation, the benefits of setting a higher inflation target are not compelling.

The Fed’s inflation target is 2 percent, and we are committed to returning inflation to 2 percent in a sustainable and timely way. This explicit target was first established in the FOMC’s statement on longer-run goals and monetary policy strategy in January 2012, and it has been reaffirmed every year since then. The 2 percent target was taken as given when the FOMC undertook its review of the monetary policy framework in 2019. The revised statement on longer-run goals and monetary policy strategy, which reflects the outcome of the review, recognizes the importance of keeping inflation expectations well-anchored at levels consistent with 2 percent inflation. 10 And by “well-anchored” I mean longer-term inflation expectations that are insensitive to data.

One of the big lessons from the 1970s is that it is much more difficult and costly to bring inflation down once it has become embedded in the economy, that is, once businesses and households expect inflation to remain elevated and those expectations influence their savings and investment decisions and price-setting and wage-setting behavior. Indeed, inflation expectations have been a central factor in models of inflationary dynamics since the 1960s and 1970s. 11 The theory indicates that well-anchored longer-term inflation expectations can help to mitigate the pull of resource gaps on inflation, and therefore, the cyclical movements in interest rates that policymakers induce to maintain price stability need not be as large as when inflation expectations are not well-anchored.

Putting the theory into practice brings me to my third question : For the purposes of setting monetary policy, how should inflation expectations be measured and over what time horizon?

One difficulty in moving from theory to practice is that while the models talk about “inflation expectations,” these expectations are not directly observable. So policymakers look at a number of measures that differ by type of agent and time horizon. These include measures based on surveys of consumers, businesses, and professional forecasters; measures derived from financial markets; and composite indices that combine various measures. A clear signal is not always forthcoming because the inflation expectations of different groups of agents can behave differently from one another. Even within groups there can be variation, and the literature has not firmly established whose expectations are most important for inflation dynamics. 12

Households may find it challenging to answer questions about the economic concept of inflation. Recent Cleveland Fed research found that when consumers are asked about what they think inflation will be in the future for the various categories of consumer spending, their answers do not aggregate up using any plausible weighting scheme to what they expect overall inflation will be. 13 Aggregated inflation expectations over categories tend to be lower than expectations of overall inflation, and the bottom-up aggregated expectations explain a greater share of planned consumer spending. This inconsistency reinforces the approach taken by policymakers to look at various measures of inflation expectations.

Indeed, several new measures are increasing our understanding of inflation expectations. Researchers at the Cleveland Fed have developed a measure of inflation expectations that does not require the respondents to understand the economic concept of aggregate inflation. The Cleveland Fed’s indirect consumer inflation expectations (ICIE) measure, which started in 2021, is based on a nationwide survey with more than 10,000 responses and is updated on a weekly basis. Instead of asking consumers directly about overall inflation, the survey asks consumers how they expect the prices of the things they buy to change over the next 12 months and how much their incomes would have to change for them to be able to afford the same consumption basket and be equally well-off. 14 According to this measure, women’s inflation expectations have tended to run higher than those of men, and older respondents and more educated respondents also have reported higher inflation expectations than their counterparts.

Less information has been available on firms’ inflation expectations, even though firms are the price setters. But new data series are being developed. For example, the Cleveland Fed has begun publishing the Survey of Firms’ Inflation Expectations (SoFIE), a nationally representative, quarterly survey of CEOs and other top business executives, which was started by academics in 2018. 15 The survey data indicate that the year-ahead inflation expectations of these business executives rose as inflation increased in 2021 and 2022. Their expectations began to decline in 2023 but remain elevated at 4.3 percent as of July. Perhaps more troubling is that when respondents were asked in April what they thought the Fed’s inflation target was, the mean response was 3.1 percent. This is higher than our target of 2 percent and also nearly a percentage point above the mean response before the pandemic.

Monetary policymakers typically focus on medium- to longer-term inflation expectations because this is the time horizon over which monetary policy can be expected to affect the economy and is more reflective of consumers’ perceptions of the Fed’s commitment and ability to return the economy to price stability. Ample research shows that changes in the prices of particular salient items, including gasoline and food, which are independent of monetary policy, can have an outsized effect on households’ shorter-run inflation expectations. 16 However, recent research by Cleveland Fed economists indicates that policymakers should not ignore persistently elevated levels of shorter-term inflation expectations and focus only on longer-term expectations. The researchers find persistent differences in inflation expectations across consumers of different ages and that households form their expectations of inflation based on their lifetime experience of inflation. 17 When this mechanism is incorporated into a conventional New Keynesian model, inflation shocks are more persistent than otherwise, and the optimal response is for monetary policy to tighten when short-run inflation expectations rise even if longer-run expectations are stable. Doing so helps to limit the experience households have with high inflation, which helps to keep inflation expectations anchored in the future.

Better understanding of how households and firms form their inflation expectations will help inform how monetary policymakers should respond when inflation deviates from the target. This brings me to my fourth and final question : How should monetary policymakers respond to supply shocks?

The current episode of high inflation has been a challenging one. In the U.S., inflation began rising in the spring of 2021. A sequence of supply shocks, driven first by the pandemic and then the war in Ukraine contributed to the high inflation. These supply shocks were concentrated in the goods sector, which was already seeing a surge in demand as consumers shifted spending from services to goods during the pandemic-induced shutdown and when they continued to take social distancing measures once the economy reopened. The supply shocks exacerbated the imbalances between demand and supply, which, in an environment of very accommodative fiscal and monetary policy, led to a significant and persistent increase in inflation.

The episode has called into question the conventional view that monetary policy should always look through supply shocks. The thinking is that supply shocks tend to be transitory, and while they raise the price level for a time, they do not lead to a persistent increase in inflation or inflation expectations. Moreover, since monetary policy acts with a lag, if policymakers were to react to a transitory supply shock, it would be counterproductive, affecting the economy after the supply shock had dissipated. But to the extent that supply shocks are more persistent or there is a sequence of supply shocks, this thinking need not apply because such shocks can threaten the stability of inflation expectations and this would require policy action. Indeed, when inflation expectations are not firmly anchored, if monetary policy fails to react in an appropriate way, what starts out as a potentially temporary shock could lead to more persistent effects on inflation. 18

This brings up the possibility that monetary policy may want to react differently depending on the nature of the shock that has led to a rise in inflation, with the reaction dependent on the size and persistence of the shock, because different shocks have different implications for inflation expectations. An interesting paper presented at the conference suggests that in an environment where prices are more flexible than wages and agents have bounded rationality rather than fully rational expectations with respect to inflation, policy may want to respond more aggressively to supply shocks when inflation is already high and less aggressively when inflation is low. 19 This can lead policymakers to first look through supply shocks and then respond more aggressively as inflation moves up, which arguably characterizes the current high-inflation episode. However, other interesting research shows that optimal monetary policy responses depend critically on how inflation expectations are formed and how well they are anchored. In one model, when expectations differ from rational expectations and are not well-anchored, policymakers are better off responding earlier to signs that inflation is rising rather than delaying and only then responding aggressively. 20 The implication is that when there is uncertainty, policymakers should overestimate the degree of persistence of inflation shocks rather than underestimate it.

More research on the timing and magnitude of the optimal monetary policy response in the face of different types of shocks and when inflation expectations deviate from rational expectations would be helpful to policymakers.

To conclude, let me again thank the organizers at the European Central Bank and at the Cleveland Fed for putting together such a strong conference program. When we started the Cleveland Fed’s Center for Inflation Research in December 2018, some people raised an eyebrow. They questioned the center’s focus because inflation had been so benign for quite some time. It turned out to be precisely the right time to further the research agenda on inflation. Maintaining price stability is the responsibility of the central bank and only the central bank can deliver on this goal over time. While considerable progress has been made on developing inflation models and measures that can better inform monetary policymaking, we still have much to learn about inflation dynamics. I encourage the researchers participating in this conference to continue furthering their research agendas because good policymaking depends on the research that informs it.

• See Mester (2014). Return to 1
• The Federal Reserve Bank of Cleveland produces the median and trimmed-mean CPI inflation rate and the median PCE inflation rate. The Federal Reserve Bank of Dallas produces the trimmed-mean PCE inflation rate. The Federal Reserve Bank of Cleveland’s Center for Inflation Research produces inflation measures and analyses of inflation and inflation expectations to inform policymakers, researchers, and the general public ( https://www.clevelandfed.org/center-for-inflation-research ). Return to 2
• See Bryan and Pike (1991), Bryan and Cecchetti (1993), and Bryan, Cecchetti, and Wiggins (1997) for CPI, and Meyer, Venkatu, and Zaman (2013), Meyer and Zaman (2019), and Smith (2004) for PCE. An exception is Crone, et al. (2013), who find that headline PCE inflation can beat the core measure in predicting future PCE inflation. Return to 3
• See Stock and Watson (2020) and Zaman (2019). Return to 4
• Klenow and Malin (2010) review the literature. Return to 5
• These papers include Adam, Alexandrov, and Weber (2023), Gagliardone et al. (2023), Lan, Li, and Li (2023), and Sara-Zaror (2021). Return to 6
• See Dogra, et al. (2023). Return to 7
• See Hajdini, et al. (2023). Return to 8
• See L’Huillier and Schoenle (2023). Return to 9
• The FOMC’s statement on longer-run goals and monetary policy strategy, revised in 2020 and reaffirmed since then, says that the Committee judges that longer-term inflation expectations that are well-anchored at 2 percent contribute to achieving its monetary policy goals. See Federal Open Market Committee (2023). Return to 10
• See Phelps (1967), Friedman (1968), and Lucas (1972). For further discussion see Mester (2022a,b). Return to 11
• Candia, Coibion, and Gorodnichenko (2021) find that the mean inflation forecasts of firms often deviate significantly from those of professional forecasters and households. Return to 12
• See Dietrich, et al. (2022). Return to 13
• The ICIE series is available on the Central Bank Research Association (CEBRA) website at https://cebra.org/indirect-consumer-inflation-expectations/ . For background on the survey and results using the survey, see Hajdini, et al. (2022a,b). Return to 14
• The Survey of Firms’ Inflation Expectations (SoFIE) was created by Professors Olivier Coibion and Yuriy Gorodnichenko; it is maintained by the Federal Reserve Bank of Cleveland at https://www.clevelandfed.org/indicators-and-data/survey-of-firms-inflation-expectations . For background on the survey, see Garciga et al. (2023). Return to 15
• For the effect of salient prices on inflation expectations, see Coibion and Gorodnichenko (2015), Cavallo, Cruces, and Perez-Truglia (2017), D’Acunto, et al. (2021), and Campos, McMain, and Pedemonte (2022). Return to 16
• See Pedemonte, Toma, and Verdugo (2023). Return to 17
• Reis (2021) and Walsh (2022) discuss the importance of anchored inflation expectations, drawing on the experience of the U.S. during the 1960s and 1970s. Return to 18
• See Beaudry, Carter, and Lahiri (2022). Return to 19
• See Walsh (2022). Return to 20
• Adam, Klaus, Andrey Alexandrov, and Henning Weber, “Inflation Distorts Relative Prices: Theory and Evidence,” CEPR Discussion Paper DP18088, April 18, 2023. ( https://cepr.org/publications/dp18088 )
• Beaudry, Paul, Thomas J. Carter, and Amartya Lahiri, “Looking Through Supply Shocks versus Controlling Inflation Expectations: Understanding the Central Bank Dilemma,” Bank of Canada Staff Working Paper 2022-41, October 13, 2022. ( https://www.bankofcanada.ca/2022/09/staff-working-paper-2022-41/ )
• Bryan, Michael F., and Christopher J. Pike, “Median Price Changes: An Alternative Approach to Measuring Current Monetary Inflation,” Federal Reserve Bank of Cleveland, Economic Commentary, December 1, 1991. ( https://doi.org/10.26509/frbc-ec-19911201 )
• Bryan, Michael F., and Stephen G. Cecchetti, “Measuring Core Inflation.” Federal Reserve Bank of Cleveland, Working Paper No. 93-04, June 1993. ( https://doi.org/10.26509/frbc-wp-199304 )
• Bryan, Michael F., Stephen G. Cecchetti, and Rodney L. Wiggins II, “Efficient Inflation Estimation,” Federal Reserve Bank of Cleveland, Working Paper No. 97-07, August 1997. ( https://doi.org/10.26509/frbc-wp-199707 )
• Campos, Chris, Michael McMain, and Mathieu Pedemonte, “Understanding Which Prices Affect Inflation Expectations,” Economic Commentary, Federal Reserve Bank of Cleveland, Number 2022-06, April 19, 2022. ( https://doi.org/10.26509/frbc-ec-202206 )
• Candia, Bernardo, Olivier Coibion, and Yuriy Gorodnichenko, “The Inflation Expectations of U.S. Firms: Evidence from a New Survey,” National Bureau of Economic Research Working Paper 28836, May 2021. ( http://www.nber.org/papers/w28836 )
• Cavallo, Alberto, Guillermo Cruces, and Ricardo Perez-Truglia, “Inflation Expectations, Learning, and Supermarket Prices: Evidence from Survey Experiments,” American Economic Journal: Macroeconomics 9, 2017, pp. 1-35. ( https://www.aeaweb.org/articles?id=10.1257/mac.20150147 )
• Coibion, Olivier, and Yuriy Gorodnichenko, “Is the Phillips Curve Alive and Well after All? Inflation Expectations and the Missing Disinflation,” American Economic Journal: Macroeconomics 7, 2015, pp. 197-232. ( http://dx.doi.org/10.1257/mac.20130306 )
• Crone, Theodore M., N. Neil K. Khettry, Loretta J. Mester, and Jason A. Novak, “Core Measures of Inflation as Predictors of Total Inflation,” Journal of Money, Credit and Banking 45 (March-April 2013), pp. 505-519. ( https://doi.org/10.1111/jmcb.12013 )
• D’Acunto, Francesco, Ulrike Malmendier, Juan Ospina, and Michael Weber, “Exposure to Grocery Prices and Inflation Expectations,” Journal of Political Economy 129, 2021, pp 1615-1639. ( https://doi.org/10.1086/713192 )
• Dietrich, Alexander M., Edward S. Knotek II, Kristian Ove R. Myrseth, Robert W. Rich, Raphael S. Schoenle, and Michael Weber. “Greater Than the Sum of the Parts: Aggregate vs. Aggregated Inflation Expectations,” Federal Reserve Bank of Cleveland, Working Paper No. 22-20, June 2022. ( https://doi.org/10.26509/frbc-wp-202220 )
• Dogra, Keshav, Sebastian Heise, Edward S. Knotek II, Brent Meyer, Robert W. Rich, Raphael S. Schoenle, Giorgio Topa, Wilbert van der Klaauw, and Wändi Bruine de Bruin, “Estimates of Cost-Price Passthrough from Business Survey Data.” Federal Reserve Bank of Cleveland, Working Paper No. 23-14, June 2023. ( https://doi.org/10.26509/frbc-wp-202314 )
• Federal Open Market Committee, “Statement on Longer-Run Goals and Monetary Policy Strategy,” reaffirmed effective January 31, 2023. ( https://www.federalreserve.gov/monetarypolicy/files/FOMC_LongerRunGoals.pdf )
• Federal Reserve Bank of Cleveland’s Center for Inflation Research. ( https://www.clevelandfed.org/center-for-inflation-research )
• Friedman, Milton, “The Role of Monetary Policy,” American Economic Review 58, 1968, pp. 1-17. ( https://www.jstor.org/stable/1831652 )
• Gagliardone, Luca, Mark Gertler, Simone Lenzu, and Joris Tielens, “Anatomy of the Phillips Curve: Micro Evidence and Macro Implications,” National Bureau of Economic Research, Working Paper 31382, June 2023. ( https://doi.org/10.3386/w31382 )
• Garciga, Christian, Edward S. Knotek II, Mathieu Pedemonte, and Taylor Shiroff, “The Survey of Firms’ Inflation Expectations.” Economic Commentary, Federal Reserve Bank of Cleveland, Number 2023-10, May 22, 2023. ( https://doi.org/10.26509/frbc-ec-202310 )
• Hajdini, Ina, Edward S. Knotek II, John Leer, Mathieu Pedemonte, Robert W. Rich, and Raphael S. Schoenle, “Indirect Consumer Inflation Expectations,” Economic Commentary, Federal Reserve Bank of Cleveland, Number 2022-03, March 1, 2022a. ( https://doi.org/10.26509/frbc-ec-202203 )
• Hajdini, Ina, Edward S. Knotek II, John Leer, Mathieu Pedemonte, Robert W. Rich, and Raphael S. Schoenle, “Indirect Consumer Inflation Expectations: Theory and Evidence,” Federal Reserve Bank of Cleveland, Working Paper No. 22-35, November 2022b. ( https://doi.org/10.26509/frbc-wp-202235 )
• Hajdini, Ina, Edward S. Knotek II, John Leer, Mathieu Pedemonte, Robert W. Rich, and Raphael S. Schoenle, “Low Passthrough from Inflation Expectations to Income Growth Expectations: Why People Dislike Inflation,” Federal Reserve Bank of Cleveland Working Paper No. 22-21R, March 2023. ( https://doi.org/10.26509/frbc-wp-202221r )
• Indirect Consumer Inflation Expectations (ICIE), Central Bank Research Association (CEBRA). ( https://cebra.org/indirect-consumer-inflation-expectations/ )
• Klenow, Peter J., and Benjamin A. Malin, “Chapter 6 – Microeconomic Evidence on Price-Setting,” in Handbook of Monetary Economics, vol. 3, ed. Benjamin M. Friedman and Michael Woodford, Amsterdam: North Holland, 2010, pp. 231-284. ( https://doi.org/10.1016/B978-0-444-53238-1.00006-5 )
• Lan, Ting, Lerong Li, and Minghao Li. 2023. “Matching Price Stickiness and MPC: Monetary Policy Implications,” manuscript, 2023.
• L’Huillier, Jean-Paul, and Raphael Schoenle, “Raising the Inflation Target: What Are the Effective Gains in Policy Room?” manuscript (revision of Federal Reserve Bank of Cleveland, Working Paper No. 20-16), May 18, 2023. ( https://people.brandeis.edu/~schoenle/research/raising_the_target.pdf )
• Lucas, Robert E., Jr., “Expectations and the Neutrality of Money,” Journal of Economic Theory 4, 1972, pp. 103-124. ( https://doi.org/10.1016/0022-0531(72)90142-1 )
• Mester, Loretta J., “Inflation and Monetary Policy: Six Research Questions,” keynote remarks, Federal Reserve Bank of Cleveland Conference on Inflation, Monetary Policy, and the Public, Cleveland, OH, May 30, 2014. ( https://www.clevelandfed.org/en/collections/speeches/2014/sp-20140530-inflation-and-monetary-policy-six-research-questions )
• Mester, Loretta J., “The Role of Inflation Expectations in Monetary Policymaking: A Practitioner’s Perspective,” European Central Bank Forum on Central Banking: Challenges for Monetary Policy in a Rapidly Changing World, Sintra, Portugal, June 29, 2022a. ( https://www.clevelandfed.org/en/collections/speeches/2022/sp-20220629-the-role-of-inflation-expectations-in-monetary-policymaking )
• Mester, Loretta J., “Inflation, Inflation Expectations, and Monetary Policymaking Strategy,” Distinguished Speaker Series, Massachusetts Institute of Technology, Golub Center for Finance and Policy, Cambridge, MA, September 26, 2022b. ( https://www.clevelandfed.org/en/collections/speeches/2022/sp-20220926-inflation-inflation-expectations-and-monetary-policymaking-strategy )
• Meyer, Brent, Guhan Venkatu, and Saeed Zaman, “Forecasting Inflation? Target the Middle,” Federal Reserve Bank of Cleveland, Economic Commentary Number 2013-05, April 11, 2013. ( https://doi.org/10.26509/frbc-ec-201305 )
• Meyer, Brent, and Saeed Zaman, “The Usefulness of the Median CPI in Bayesian VARs Used for Macroeconomic Forecasting and Policy.” Empirical Economics 57, 2019, pp. 603-630. ( https://doi.org/10.1007/s00181-018-1472-1 )
• Pedemonte, Mathieu, Hiroshi Toma, and Esteban Verdugo, “Aggregate Implications of Heterogeneous Inflation Expectations: The Role of Individual Experience,” Working Paper No. 23-04, Federal Reserve Bank of Cleveland, January 2023. ( https://doi.org/10.26509/frbc-wp-202304 )
• Phelps, Edmund S., “Phillips Curves, Expectations of Inflation, and Optimal Unemployment Over Time,” Economica 34, 1967, pp. 254-281. ( https://doi.org/10.2307/2552025 )
• Reis, Ricardo, “Losing the Inflation Anchor,” Brookings Papers on Economic Activity, Fall 2021, pp. 307-361. (Brookings conference draft available at: https://www.brookings.edu/wp-content/uploads/2021/09/Losing-the-Inflation-Anchor_Conf-Draft.pdf )
• Sara-Zaror, Francisca, “Expected Inflation and Welfare: The Role of Consumer Search,” manuscript, November 14, 2021. ( http://dx.doi.org/10.2139/ssrn.4127502 )
• Smith, Julie K., “Weighted Median Inflation: Is This Core Inflation?” Journal of Money, Credit and Banking 36, April 2004, pp. 253-263. ( https://www.jstor.org/stable/3839019 )
• Stock, James H., and Mark W. Watson, “Slack and Cyclically Sensitive Inflation,” Journal of Money, Credit and Banking 52(S2), December 2020, pp. 393-428. ( https://doi.org/10.1111/jmcb.12757 )
• Survey of Firms’ Inflation Expectations (SoFIE), Federal Reserve Bank of Cleveland. ( https://www.clevelandfed.org/indicators-and-data/survey-of-firms-inflation-expectations )
• Walsh, Carl E., “Inflation Surges and Monetary Policy,” Monetary and Economic Studies 40, Bank of Japan, November 2022, pp. 39-66. ( https://www.imes.boj.or.jp/research/papers/english/me40-4.pdf )
• Zaman, Saeed, “Cyclical versus Acyclical Inflation: A Deeper Dive,” Federal Reserve Bank of Cleveland, Economic Commentary, Number 2019-13, September 4, 2019. ( https://doi.org/10.26509/frbc-ec-201913 )

Suggested Citation

Mester, Loretta J. 2023. “Inflation: Four Questions Requiring Further Research to Inform Monetary Policy.” Speech, Closing Remarks, Inflation: Drivers and Dynamics Conference 2023-Federal Reserve Bank of Cleveland’s Center for Inflation Research and the European Central Bank-Frankfurt am Main, Germany.

Why are Consumers So Glum? Inflation and High Rates

Squared Away Blog by Kimberly Blanton

The recession that economists predicted has never materialized. Unemployment has been under 4 percent for more than two years, a low more characteristic of the go-go 1960s than modern times.

But although consumer sentiment, as measured by the University of Michigan’s monthly survey, is improving, it is still mired in the same territory that it was after the 2008 financial crisis. 

The first reason is, of course, fallout from COVID-fueled inflation. Americans continue to feel the pain of paying more for everything from eggs and consumer goods to cars.

But inflation began to ease up last year and remains well below the pandemic’s 9 percent peak, despite March’s unwelcome increase of 3.5 percent annually. So how to explain consumers’ sour mood? What else might be missing from our understanding of what is driving their views of the economy.

A new study has an answer: high interest rates. The researchers make the case that consumer sentiment reflects not just inflation but also the current high interest rates on car loans, mortgages and credit cards that followed the Federal Reserve’s attempt to rein in inflation by raising the federal funds rate last year.

If high interest rates were included in a revised Consumer Price Index (CPI), a new reality comes into the picture that more closely tracks how unhappy people are feeling. “Consumers are considering the cost of money” – interest rates – “in their perspective on their economic well-being,” said the researchers, who include former U.S. Treasury Secretary Lawrence Summers.

One example of how high interest rates affect consumer sentiment is homebuying. House prices have increased about 40 percent since the pandemic but mortgage rates have more than doubled. When a couple is house shopping, the rate – and not just the property price – determine how much the mortgage payment will take out of their paychecks.

The cost of financing a new car or truck is no small matter either when interest is added to the much higher post-pandemic vehicle prices. Credit card rates have also increased, from 15 percent two years ago to 21 percent last year, according to the study.

Last summer, the Federal Reserve paused its interest rate increases. March’s unencouraging report will likely extend that pause rather than provide the Fed with justification for cutting rates.

Whether inflation picks up or cools down will determine the Fed’s next move – and consumers’ mood in an election year.

Squared Away  writer Kim Blanton invites you to follow us  @SquaredAwayBC on X, formerly known as Twitter. To stay current on our blog, join  our free email list. You’ll receive just one email each week – with links to the two new posts for that week – when you  sign up here .  This blog is supported by the Center for Retirement Research at Boston College.

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Key facts about housing affordability in the U.S.

A rising share of Americans say the availability of affordable housing is a major problem in their local community. In October 2021, about half of Americans (49%) said this was a major problem where they live, up 10 percentage points from early 2018. In the same 2021 survey, 70% of Americans said young adults today have a harder time buying a home than their parents’ generation did.

A variety of factors have set the stage for the financial challenges American homeowners and renters have been facing in the housing market, including incomes that haven’t kept pace with housing cost increases and a housing construction slowdown . A surge in homebuying spurred by record low mortgage interest rates during the COVID-19 pandemic has further strained the availability of homes.

Here are some of the key measures of the housing affordability crunch in the United States and the reasons behind it.

This Pew Research Center analysis about housing affordability in America draws from Center surveys designed to understand Americans’ views and preferences for where they live. It also uses outside data from sources including the Federal Reserve Bank and the U.S. Census Bureau.

Everyone who took the Pew Research Center surveys cited is a member of the Center’s American Trends Panel (ATP), an online survey panel that is recruited through national, random sampling of residential addresses. This way nearly all U.S. adults have a chance of selection. The survey is weighted to be representative of the U.S. adult population by gender, race, ethnicity, partisan affiliation, education and other categories. Read more about the ATP’s methodology .

Rising demand for housing meets limited supply

• As home sales have boomed, active housing listings have dropped and the median home sale price has surged, according to data from the Federal Reserve. The number of active housing listings in the U.S. was at its lowest in at least five years in January 2022, with 408,922 active listings on the market. That’s a 60% drop from about 1 million listings in February 2020, just before the coronavirus recession hit the U.S. Around the same time, the national median sale price for a single-family home jumped 25% from $327,100 in the fourth quarter of 2019 (the last full quarter unaffected by the COVID-19 recession) to $408,100 in the fourth quarter of 2021, the most recent data available. The greatest increases were in the West, Midwest and Northeast. Housing vacancy rates, meanwhile, have dropped over the last decade. The vacancy rate for rental units fell from about 10% in 2010 to 5.6% at the end of 2021. The rate for homeowner units is down from about 2.6% in 2010 to 0.9% in 2021 (the most recent year with available data).
• Housing availability has been squeezed by a near-record increase in the number of American homeowners in 2020, a Pew Research Center analysis of U.S. Census Bureau data found. There were an estimated 2.1 million more homeowners in the fourth quarter of 2020 than there were a year earlier, equal to the previous record increase in homeowners, which occurred during the housing boom between 2003 and 2004. During 2020, the U.S. homeownership rate also increased to 65.8%, up from 65.1% a year earlier – a large year-over-year change, but still below the historical peak of 69.2% in 2004. The homeownership rate in the fourth quarter of 2021 (65.5%) was not statistically different from the rates in the fourth quarter of 2020 (65.8%) and the third quarter of 2021 (65.4%). Homeownership among households headed by White Americans rose an estimated 0.8 points from 2019 to 2020 – the only racial or ethnic group to see a statistically significant increase during that time. (Homeownership rates did not significantly increase for any racial or ethnic group between 2020 and 2021). In the fourth quarter of 2021, 74% of White adults owned a home, compared with 43% of Black Americans and 48% of Hispanic Americans. These disparities in homeownership have persisted over decades.

Renters are feeling the strain

• In 2020, 46% of American renters spent 30% or more of their income on housing, including 23% who spent at least 50% of their income this way, according to the most recent data available from the U.S. Census Bureau . This meets the Department of Housing and Urban Development’s definition of being “cost burdened.” Although spending 30% of income on housing has long been considered the most a household should spend in order to have money left over for essentials, some researchers have argued this housing affordability measure should be adjusted to reflect changes in the cost of other necessities, types of households and other factors.

• Renters across the U.S. have seen the average rent rise 18% over the last five years, outpacing inflation, according to consumer price index data from  the Bureau of Labor Statistics . Between 2017 and 2022, the cost of all goods and services increased by 16% due to inflation. During that span, the growth in rent prices exceeded inflation in every region but the Northeast: The average rent rose 21% in the West, 20% in the South and 18% in the Midwest. Rents were up 12% in the Northeast during that time.  From February 2020 to February 2022, rents were up 6%, compared with a 10% inflation rate amid loosening coronavirus restrictions.
• Renters tend to skew toward the lower ends of the economic scale when it comes to income and wealth , according to data from the Federal Reserve’s 2019  Survey of Consumer Finances . That year, about six-in-ten Americans in the lowest income quartile (61%) rented their homes, as did 88% of people with net worths below the 25th percentile. People with lower incomes or net worths were more likely to be renters: Only 10.5% of people in the top income quartile, for example, were renters. Younger Americans and those who are Black or Hispanic are more likely to be renters, according to an August 2021 Pew Research Center analysis of U.S. Census Bureau data. Roughly a third of U.S. households (35%) were headed by renters in 2021, the last year for which the U.S. Census Bureau has reliable estimates. Households headed by Black or African American adults are more likely than the population overall to rent their homes (57% rent), along with 52% of Hispanic- or Latino-led households. Around a quarter of households led by non-Hispanic White adults (26%) rent. Americans younger than 35 are far more likely to rent than those in older age groups: 62% of this age group lives in rentals compared with 39% of those ages 35 to 44, and 30% of 45- to 54-year-olds.
• Looking ahead, Americans anticipate continued rent increases in 2022, according to the Federal Reserve Bank of New York’s Survey of Consumer Expectations . Americans expect that rents will increase by 10% this year – that’s larger than the expected increase in price for any other commodity, including food (9.2%), college education (9.0%) and gas (8.8%).
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Katherine Schaeffer is a research analyst at Pew Research Center

A look at small businesses in the U.S.

State of the union 2024: where americans stand on the economy, immigration and other key issues, americans more upbeat on the economy; biden’s job rating remains very low, online shopping has grown rapidly in u.s., but most sales are still in stores, congress has long struggled to pass spending bills on time, most popular.

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Research Paper - Inflation Rate in the Philippines

This research paper tackles the factors that affects the sudden rise of the inflation rate in the Philippines.

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This research uses annual time series data on inflation rates in the Philippines from 1960 to 2017, to model and forecast inflation using ARIMA models. Diagnostic tests indicate that P is I(1). The study presents the ARIMA (1, 1, 3). The diagnostic tests further imply that the presented optimal ARIMA (1, 1, 3) model is stable and acceptable for predicting inflation in the Philippines. The results of the study apparently show that P will fall down from 5.6% in 2018 to approximately 0.3% in 2027. The Bangko Sentral ng Pilipinas is expected to continue implementing it inflation targeting policy framework since it proves to work well for the economy.

Prof. Dr. Valliappan Raju

Inflation is one of the most complex macroeconomic phenomena in industrialized economies. This study mainly focuses on examining inflation-related factors in Malaysia. Stepwise linear Regression analysis was applied via SPSS to investigate the significance of the inflation rate, exchange rate, money supply, interest rate and unemployment rate relationship by using time series from 1995 to 2019. The study aimed at determinants of factors that influence Malaysia's inflation. The analytical results found that the money supply and exchange rate have positive impact on the inflation, whereas the unemployment rate and interest rate have negative impact on the inflation. Moreover, The hypothetical results are supported to the exchange rate and interest rate. The remaining other two independent variables do not support the hypotheses. The study suggests that Inflation, pushed up by money growth rate as well as Ringgit depreciation and higher interest rates, has adversely impacted produc...

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Comparison between Civilian government and Military Administrations Economic Policy Analysis. The purpose of this paper is to make analysis of inflation rate during military regime by comparing it with the civilian regime in Pakistan. The paper will also focus on the major events which were the main causes of creating inflation and the remedies took by the than governments to mitigate the effect on masses and policies made to counter the inflation.

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Russian Central Bank Holds Rates at 16%, Raises Inflation Forecast

A Russian state flag flies over the Central Bank headquarters in Moscow, Russia, August 15, 2023. A sign reads: "Bank of Russia". REUTERS/Shamil Zhumatov/ File photo

By Elena Fabrichnaya and Alexander Marrow

MOSCOW (Reuters) - Russia's central bank held its key interest rate at 16% for the third meeting running on Friday, but raised its inflation forecast for 2024, acknowledging for the first time that it may struggle to reach its 4% target this year.

The decision was in line with a Reuters poll of economists, which had forecast that the persistence of inflation, fanned by strong consumer demand and widespread labour shortages, would prevent the central bank from easing borrowing costs more quickly.

The bank lifted its inflation forecast to 4.3-4.8% from 4-4.5% previously.

"Due to the remaining elevated domestic demand, which outstrips the capabilities to expand supply, inflation will return to the target somewhat more slowly than the Bank of Russia forecast in February," the bank said in a statement.

The Bank of Russia had raised rates by 850 basis points in the second half of 2023, including an unscheduled emergency hike in August as the rouble tumbled past 100 to the dollar and the Kremlin called for tighter monetary policy.

Inflation, the bank's main area of concern, stood at 7.4% in 2023, compared with 11.9% in 2022. Economists expect it to remain well above the central bank's 4% target this year.

IMPROVED GDP PROSPECTS

The bank updated its macroeconomic forecasts, raising Russia's economic growth prospects to 2.5-3.5% from the previous range of 1-2%. It increased its forecast for the average key rate range in 2024 to 15-16% from 13.5-15.5%.

Governor Elvira Nabiullina was due to address the media at 1200 GMT. The bank's next rate-setting meeting is scheduled for June 7.

Russia's economy rebounded sharply last year from a slump in 2022, but the growth relies heavily on state-funded arms and ammunition production and masks other problems.

"Labour shortages come as the key constraint on the expansion of output of goods and services," the bank said. "Concurrently, labour market tightness continues to increase."

The bank's improved GDP forecast mirrors that of the economy ministry, which now expects economic growth at 2.8% this year, while envisaging a weaker rouble and shrinking current account surplus in the coming years. The ministry's stress scenarios anticipate stalling growth and a diving rouble.

The central bank raised its 2024 current account surplus forecast to $50 billion from $42 billion previously.

In the first half of 2023, the central bank had cut rates as low as 7.5%, gradually reversing an emergency hike to 20% implemented in February 2022 after Moscow sent its army into Ukraine, triggering sweeping Western sanctions.

(Reporting by Alexander Marrow in London and Elena Fabrichnaya in Moscow; Editing by Mark Trevelyan)

Copyright 2024 Thomson Reuters .

Tags: funds , Russia , Asia , Europe

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Poll: Election interest hits new low in tight Biden-Trump race

The share of voters who say they have high interest in the 2024 election has hit a nearly 20-year low at this point in a presidential race, according to the latest national NBC News poll , with majorities holding negative views of both President Joe Biden and former President Donald Trump.

The poll also shows Biden trimming Trump’s previous lead to just 2 points in a head-to-head contest, an improvement within the margin of error compared to the previous survey, as Biden bests Trump on the issues of abortion and uniting the country, while Trump is ahead on competency and dealing with inflation.

And it finds inflation and immigration topping the list of most important issues facing the country, as just one-third of voters give Biden credit for an improving economy.

But what also stands out in the survey is how the low voter interest and the independent candidacy of Robert F. Kennedy Jr. could scramble what has been a stable presidential contest with more than six months until Election Day. While Trump holds a 2-point edge over Biden head to head, Biden leads Trump by 2 points in a five-way ballot test including Kennedy and other third-party candidates.

“I don’t think Biden has done much as a president. And if Trump gets elected, I just feel like it’s going to be the same thing as it was before Biden got elected,” said poll respondent Devin Fletcher, 37, of Wayne, Michigan, a Democrat who said he’s still voting for Biden.

“I just don’t feel like I have a candidate that I’m excited to vote for,” Fletcher added.

Another poll respondent from New Jersey, who declined to provide her name and voted for Biden in 2020, said she wouldn’t be voting in November.

“Our candidates are horrible. I have no interest in voting for Biden. He did nothing. And I absolutely will not vote for Trump,” she said.

Democratic pollster Jeff Horwitt of Hart Research Associates, who conducted the survey with Republican pollster Bill McInturff of Public Opinion Strategies, said, “Americans don’t agree on much these days, but nothing unites the country more than voters’ desire to tune this election out.”

The poll was conducted April 12-16, during yet another turbulent time in American politics, including the  beginning of Trump’s criminal trial  in New York and new attacks and heightened tensions  in the Middle East.

According to the poll, 64% of registered voters say they have high levels of interest in November’s election — registering either a “9” or a 10” on a 10-point scale of interest.

That’s lower than what the NBC News poll showed at this time in the 2008 (74%), 2012 (67%), 2016 (69%) and 2020 (77%) presidential contests.

The question dates to the 2008 election cycle. The lowest level of high election interest in the poll during a presidential cycle was in March 2012 — at 59%. But it quickly ticked up in the next survey.

This election cycle, high interest has been both low and relatively flat for months, according to the poll.

McInturff, the Republican pollster, says the high level of interest in the poll has “always been a signal for the level of turnout” for a presidential contest.

“It makes it very hard for us to predict turnout this far in advance of November, but every signal is turnout will be a lower percentage of eligible voters than in 2020,” he said.

By party, the current poll shows 70% of self-identified Republicans saying they have high interest in the coming election, compared with 65% of Democrats who say so.

Independents are at 48%, while only 36% of voters ages 18 to 34 rate themselves as highly interested in the election.

“They just aren’t low interest,” McInturff said of young voters. “They are off-the-charts low.”

NBC News poll: Frequently asked questions

Professional pollsters at a Democratic polling firm (Hart Research Associates) and a Republican firm (Public Opinion Strategies) have worked together to conduct and operate this poll since 1989. (Coldwater Corporation served as the Republican firm from 1989-2004.)

The polling firms employ a call center, where live interviewers speak by cell phone and telephone with a cross section of (usually) 1,000 respondents. The respondents are randomly selected from national lists of households and cell numbers. Respondents are asked for by name, starting with the youngest male adult or female adult in the household.

One of the common questions that critics ask of polls is, "I wasn't interviewed, so why should this poll matter?” By interviewing 1,000 respondents and applying minimal weights based on race, ethnicity, age, gender, education and the 2020 presidential vote, the poll achieves a representative sample of the nation at large – with a margin of error at a 95% confidence level.

NBC News editors and reporters — along with the pollsters at Hart Research and Public Opinion Strategies — all work to formulate the questions to try to capture the news and current events NBC is trying to gauge. Both Hart Research and Public Opinion Strategies work to ensure the language and placement of the questions are as neutral as possible.

Biden trims Trump’s lead

The poll also finds Trump narrowly ahead of Biden by 2 points among registered voters in a head-to-head matchup, 46% to 44% — down from Trump’s 5-point advantage in January, 47% to 42%.

The movement, which is within the poll’s margin of error of plus or minus 3.1 percentage points, is consistent with what other national polls have found in the Trump-Biden race.

Trump’s biggest advantages are among men (53% to 37%), white voters (54% to 37%) and white voters without college degrees (65% to 25%).

Biden’s top advantages are among Black voters (71% to 13%), women (50% to 39%) and Latinos (49% to 39%).

The poll shows the two candidates are essentially tied among independents (Biden 36%, Trump 34%) and voters ages 18-34 (Biden 44%, Trump 43%). One of the big polling mysteries this cycle is whether young voters have defected from Biden (as the NBC News poll has found over multiple surveys) or whether Democrats have maintained their advantage among that demographic.

When the ballot is expanded to five named candidates, Biden takes a 2-point lead over Trump: Biden 39%, Trump 37%, Kennedy 13%, Jill Stein 3% and Cornel West 2%.

Again, the result between Biden and Trump is within the poll’s margin of error.

Notably, the poll finds a greater share of Trump voters from the head-to-head matchup supporting Kennedy in the expanded ballot compared with Biden voters, different from the results of some other surveys.

(Read more here about how Kennedy's candidacy affe cts the 2024 race, according to the poll.)

The president’s approval rating ticks up to 42%

In addition, the poll found 42% of registered voters approving of Biden’s overall job performance — up 5 points since January’s NBC News poll, which found Biden at the lowest point of his presidency.

Fifty-six percent of voters say they disapprove of the job he has done, which is down 4 points from January.

Biden’s gains over the past few months have come from key parts of his 2020   base, especially among Democrats and Black voters. But he continues to hold low ratings among Latinos (40% approval), young voters (37%) and independents (36%).

“The data across this poll show that Joe Biden has begun to gain some ground in rebuilding his coalition from 2020,” said Horwitt, the Democratic pollster. “The question is whether he can build upon this momentum and make inroads with the groups of voters that still are holding back support.”

But McInturff, the GOP pollster, points out that the only recent presidents   who lost re-election had approval ratings higher than Biden’s at this point in the election cycle: George H.W. Bush (43%) and Trump (46%).

“President Biden has a precarious hold on the presidency and is in a difficult position as it relates to his re-election,” McInturff said.

On the issues, 39% of voters say they approve of Biden’s handling of the economy (up from 36% in January), 28% approve of his handling of border security and immigration, and just 27% approve of his handling of the Israel-Hamas war (down from 29% in January).

Voters gave Biden his highest issue rating on   addressing student loan debt, with 44% approving of his handling of the issue, compared with 51% who say they disapprove.

Biden leads on abortion and unity; Trump leads on inflation and competency

The NBC News poll asked voters to determine which candidate they thought is better on several different issues and attributes.

Biden holds a 15-point advantage over Trump on dealing with the issue of abortion, and he is ahead by 9 points on having the ability to bring the country together — though that is down from his 24-point advantage on that issue in the September 2020 NBC News poll.

Trump, meanwhile, leads in having the ability to handle a crisis (by 4 points), in having a strong record of accomplishments (by 7 points), in being competent and effective (by 11 points), in having the necessary mental and physical health to be president (by 19 points) and in dealing with inflation and the cost of living (by 22 points).

Inflation, immigration are the top 2024 issues

Inflation and the cost of living top the list of issues in the poll, with 23% of voters saying they’re the most important issue facing the country.

The other top voters is   immigration and the situation at the border (22%) — followed by   threats to democracy (16%), jobs and the economy (11%), abortion (6%) and health care (6%).

In addition, 63% of voters say their families’ incomes are falling behind the cost of living — essentially unchanged from what the poll found in 2022 and 2023.

And 53% of voters say the country’s economy hasn’t improved, compared with 33% who say that it has improved and that Biden deserves some credit for it and another 8% who agree the economy has improved but don’t give him credit for it.

“If I look back to when I had all three of my children in the house — we only have one child left in the house now, and we’re spending more now than what we did when we had a family of five,” said poll respondent Art Fales, 45, of Florida, who says he’s most likely voting for Trump.

But on a separate question — is there an issue so important that you’ll vote for or against a candidate solely on that basis? — the top responses are protecting democracy and constitutional rights (28%), immigration and border security (20%) and abortion (19%).

Indeed, 30% of Democrats, 29% of young voters and 27% of women say they are single-issue voters on abortion.

“I have a right to what I do with my body,” said poll respondent Amanda Willis, 28, of Louisiana, who said she’s voting for Biden. “And I don’t believe that other people should have the ability to determine that.”

Other poll findings

• With Trump’s first criminal trial underway, 50% of voters say he is being held to the same standard as anyone else when it comes to his multiple legal challenges. That compares with 43% who believe he’s being unfairly targeted in the trials. 
• 52% of voters have unfavorable views of Biden, while 53% share the same views of Trump.
• And Democrats and Republicans are essentially tied in congressional preference, with 47% of voters preferring Republicans to control Congress and 46% wanting Democrats in charge. Republicans held a 4-point lead on this question in January.

The NBC News poll of 1,000 registered voters nationwide — 891 contacted via cellphone — was conducted April 12-16, and it has an overall margin of error of plus or minus 3.1 percentage points.

Mark Murray is a senior political editor at NBC News.

Sarah Dean is a 2024 NBC News campaign embed.