CPI 'Comfort Zone'

While the downtick in yesterday's year/year CPI readings is certainly a step in the right direction, there will no doubt be those who will point out that even with the declines, inflation at both the headline and core level remains above the Fed's 'comfort zone' of under 2%.  While most of us would prefer inflation to be lower rather than higher, a look back over history shows that the Fed's target rate has been an uncommon, if not rare level, for both the headline and core readings.

Comments

[Steve]

The Fed's 2% comfort zone refers to the core PCE Deflator, not the core CPI.

[Paul Hickey]

Good Point Steve. We used the CPI reading as more readers are generally familiar with the CPI over the PCE. Looking at the core PCE shows that since 1960, the y/y reading has been below 2% for a total of nearly 11 years (under 25% of the time). So even here, the so-called comfort zone is pretty uncommon.

Paul

[Amit Amin]

An old article, but still very useful. Using CPI here is also helpful in comparing to inflation expectations, which, for TIPS and Mich, use CPI and not PCE.