The July CPI data were a bit softer than anticipated, due partly to a drop in the price index for lodging away from home. Granted, if you exclude everything that went down, the CPI always looks higher, but the underlying trend is not far from the Fed’s earlier expectations (of a gradual move toward the 2% goal). The Fed is more focused on future inflation than past inflation. How the new normal fits into the inflation outlook ought to be a primary consideration for Fed policy.
Inflation figures are often uneven over the course of a year. Higher numbers in January and February led to calls that the Fed had “fallen behind the curve.” The more recent soft figures have led to calls that the Fed has overdone it. Go figure.
Diving into the details, one sees some odd things. Ex-food & energy, the price index for consumer goods (18.9% of the CPI) is still showing a trend of mild deflation (-0.6% y/y). Inflation in non-energy services, buoyed over the last year by rising rents, appears to have moderated somewhat.