Central banks can't 'see through' this many inflationary risks: Mike Dolan

"PCE inflation is the yardstick for measuring the Fed’s success. Underlying inflation, regardless of its form or source, is a sideshow to that goal," former Fed economist Claudia Sahm wrote last week. Fed Chair Kevin Warsh has included the inflation gauge itself as an item to be discussed in his taskforces on Fed reform while talking up alternative measures of underlying inflation. But investors will likely look poorly on any shifting of the goal posts. "A doctor may measure your weight and investigate your diet and exercise patterns. However, if he wants to protect you from a heart attack, he should probably target your blood pressure," JPMorgan Asset Management's global strategist David Kelly wrote this week. "In the same way, while narrower inflation measures can provide a better sense of the overall inflation trend, if the Fed’s goal is to minimize the harm done by inflation to American families, the Fed should target headline PCE inflation." Moreover, food and energy prices can only stay elevated so long before they're passed on to consumers, putting upward pressure on the core figure itself. Add to this the renewal of President Donald Trump's sweeping import tariffs and a potential price boost in many electronic goods from so-called "chipflation", reflecting the shortage of memory chips due to the AI investment frenzy, and you have the makings of another goods price jump. There are other factors keeping prices on the boil more broadly. The stimulative effects of Trump's One Big Beautiful Bill from last year have been hitting in earnest in 2026, while financial conditions are close to their loosest levels of the past five years. Meantime, signs of tightness in the U.S. and global labor markets are growing, with U.S. weekly jobless claims just clocking their lowest levels since 1969. July is set to mark the longest period since World War Two that the U.S. jobless rate has been below the so-called "full employment" estimate of about 4.5%. JPMorgan economists reckon sticky labor markets across developed economies are stalling disinflation more generally, with annual wage growth finding a level above 3% across major economies. So while there may be good arguments that there is no reason to worry about any one of these inflationary factors, it's hard to dismiss all of them at the same time. In turn, it's now a heroic assumption that inflation will subside easily from here and simply glide back to target. As Fed board governor Christopher Waller memorably opined earlier this month: "Sternly staring at inflation until it melts before our withering gaze is not an option." A futures market that has two interest rate rises priced for the United States and most of Europe over the next seven months seems to get that message, even if many economists still won't accept that some monetary tightening is in the cards. As it stands, the Fed's favored inflation gauge, personal consumption expenditures — due to be released this week — is expected to show headline and core rates at 3.7% and 3.3% respectively, in June. Running above the Fed's 2% target now for more than five straight years, these inflation measures won't get much relief this month now that renewed hostilities have boosted crude oil prices, briefly catapulting Brent back above $100 per barrel last week. With the Gulf conflict's timeline up in the air once more and the disruption widening to the Red Sea, crude price volatility gauges have risen to twice their historical averages. If oil were the only problem, the central bank might have a relatively straightforward policy calculation — but that's not the case. As the average U.S. retail gasoline price sits more than 30% above its level one year ago, supply concerns are also starting to build in food prices. Overall U.S. food price inflation was already running at an annual rate of 3.0% in June, according to the consumer price index, and there are now worries that the second half of the year could see world food prices climb further due to expectations of one of the strongest El Nino weather patterns in decades. This phenomenon can weigh on crop yields. Some estimates project that annualised food inflation rates could run as high as 5% by early next year, adding more than half a point to overall global inflation rates. Even if the effects on developed economies are less than on emerging ones, the prospect of persistent food and energy price pressures over the next year should be alarming, especially with inflation already high. Of course, the debate then turns to core inflation rates that strip out volatile food and energy prices, but core rates are also well above the 2% target. And, regardless, households form expectations based on all prices, and the Fed's actual target is, in fact, the headline figure. The opinions expressed here are those of the author, a columnist for Reuters. By Mike Dolan LONDON, July 28 (Reuters) - Central banks often argue that price shocks come and go in different sectors without durably affecting the overall national inflation picture — and they are often proven correct. But when half a dozen price pressures appear at the same time, it's difficult to make the case to either the public or financial markets that the cumulative effect will be transitory. The U.S. Federal Reserve is meeting this week to review a persistently aggravated inflation environment, where prices are being buffeted by energy and supply-side distortions, geopolitical developments, fiscal stimulus, frenzied tech investment and even climate-related pressures. The Bank of Japan and the Bank of England also meet this week, facing many of the same issues. Taken in isolation, policymakers can perhaps make a cogent argument as to why they shouldn't react to any one of these factors. They may also reasonably question whether interest rates would make any difference to war or supply-chain bottlenecks, while also fretting about the tradeoffs between reducing inflation and negatively impacting jobs and economic growth. But taken together, it may be trickier to "see through" the cumulative hit — not least because it's coming with U.S. core inflation at 3%, not the accepted "price stability" target of 2%.

Central banks can't 'see through' this many inflationary risks: Mike Dolan

Broader forces may keep inflation sticky

Oil, food and tariff pressures keep building

Central banks face multiple inflation pressures at once

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