Central bank's backward-looking metrics may be masking a sharp slowdown in price pressures

The Federal Reserve's reliance on year-over-year inflation measures like the CPI may obscure a recent sharp deceleration in price growth, as the three-month annualized CPI stands at just 0.49% versus the 3.4% headline figure. Producer prices have also been falling on a monthly basis since April, with a three-month annualized rate of 1.6%. Despite some regional Fed presidents advocating for immediate rate hikes, the latest short-term trends suggest an inflation regime change could already be underway.

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The article highlights a stark divergence between the Fed's preferred 12-month inflation gauge and more recent short-term trends. While the July CPI showed a 3.4% year-over-year increase, the three-month annualized rate has collapsed to