The latest inflation print showed a minor deceleration over the year. Good news, but less than expected. Beyond the aggregate numbers, research from the Atlanta Fed dissects inflation into “sticky” and “flexible” price drivers. The split relates to how quickly prices can shift.
Sticky prices include items like rent and the cost of medical services, which are negotiated in advance and take time to change. Last year those were under control but have started to accelerate, as more price setters become influenced by current conditions. Meanwhile, flexible prices, which respond quickly and include items like energy and car prices, seem to have peaked. Extrapolating from this framework suggests it may take well into next year or after to return to a reasonable inflation level.
Fortunately, the highly anticipated switch from goods to services appears underway. The price of durable goods is flattening but some pockets of services are now spiking, with airline fares leading the way. As service capacity adjusts some of this should mitigate.
At this point, forget transitory. We are in a slow grind back to less eye-popping inflation levels.
Source: Financial Times, 2022