Inflation Isn’t Conquered Yet

Federal Reserve Chairman Jay Powell must feel like he’s on a road trip with children in the back seat asking every few minutes, “Are we there yet?” The answer from Wednesday’s consumer-price-index report is still no, but inflation is getting closer to the Fed’s 2% target.

While inflation continues to fall, service prices and the core index that excludes food and energy remain sticky. The top-line CPI last month declined to 3% year-over-year, which is the lowest since March 2021 and down from 4% in May. Much of the decline owes to falling energy and decelerating food prices. Core CPI, less food and energy, dipped to 4.8% but has been coming down more slowly.

Shelter has been the biggest contributor to price increases and hasn’t much budged over the past several months. Rents increased by 0.5% last month and by 8.3% over the past year. While rents are reportedly starting to fall in some metro markets, high housing prices and rising interest rates are making homes less affordable and exerting upward pressure on rents.

Maybe shelter prices will come down since the government’s gauge operates with a lag. But prices for some services like car insurance and healthcare have been increasing as medical providers and insurers begin to pass on their higher costs to customers. Auto insurance increased 16.9% over the past year and 1.7% last month.

The best news is that real wages have finally begun to grow, though they have a long way to go to make up for more than two years of decline. Real average hourly earnings climbed 0.2% last month and are up 1.2% over the past 12 months. But they are still 3.2% lower than December 2020, which no doubt explains why Americans are feeling glum about the economy despite low unemployment.

Real interest rates have finally turned positive, and the money supply has fallen 4% over the last year by one measure. But monetary conditions by historic standards aren’t all that tight. Markets want Mr. Powell to hit the brakes, but the Fed needs to finish its anti-inflation job—and there’s no better time than when it still has the political running room of a decent labor market.