Skip to main content

What explains the plunge in core inflation?

In contrast to the sudden weakness in core inflation a few years ago, the latest plunge in core PCE inflation cannot be explained by idiosyncratic factors. Instead, it reflects a moderation in unit labour cost growth, which will persist for some time. With core inflation now well below the Fed’s 2% target and heading lower, economic growth may not need to weaken by much to prompt the Fed to cut interest rates.

Become a client to read more

This is premium content that requires an active Capital Economics subscription to view.

Already have an account?

You may already have access to this premium content as part of a paid subscription.

Sign in to read the content in full or get details of how you can access it

Register for free

Sign up for a free account to:

  • Unlock additional content
  • Register for Capital Economics events
  • Receive email updates and economist-curated newsletters
  • Request a free trial of our services


Get access