Suggested citation: "How Can Inflation be Considered Low When Food and Gas Prices Are So High?,” Federal Reserve Bank of Cleveland, Annual Report 2010: Price Stability: Why We Seek It and How Best to Achieve It, 12.31.2010.
This Commentary builds on recent research separating the components of overall inflation into cyclical and
acyclical categories, but it does so at a finer level of disaggregation than previous analyses to understand recent inflation developments in the two categories. The inflation rate among cyclically sensitive subcomponents, which comprise roughly 40 percent of overall core PCE inflation, has generally continued to firm in recent years in line with a strengthening labor market and has returned to near pre-Great Recession levels. By contrast, the inflation rate among the acyclical subcomponents remains subdued. A modest firming in acyclical core PCE inflation to a more normal level, combined with ongoing strength in the labor market, would be enough to return core PCE inflation to 2 percent within approximately one year.