After nearly five years, inflation is finally back at the Federal Reserve’s 2 percent target.
The Bureau of Economic Analysis reported Friday that inflation rose to a 2.1 percent annual rate in February, up from 1.9 percent the month before, according to the personal consumption expenditure price index.
The PCE price index, as it’s known, is a different gauge than the more widely-cited consumer price index, but the one favored by the central bank for its inflation target.
The last time inflation was at 2 percent was in April of 2012.
Nevertheless, Fed officials might not be satisfied that inflation is going to stay at 2 percent. Stripping away volatile food and energy prices, “core” inflation was lower, at 1.8 percent. Fed officials vew core inflation as more predictive of future inflation.
Charles Evans, the president of the Federal Reserve Bank of Chicago, said Wednesday that he did not expect core inflation to hit 2 percent until 2019.
At the same time, a few members of the Fed have said that they are convinced that inflation is going to hit the 2 percent target sustainably, and that the central bank should accelerate its plans for raising its interest rate target back to more historically normal levels. Both John Williams, of the San Francisco Fed, and Eric Rosengren, of Boston, said this week that as many as four interest rate hikes might be needed this year.
Higher inflation means less purchasing power for families, and over the past five years the relatively low price level increases have helped shore up workers’ finances.
But from the Fed’s perspective, below-target inflation is a possible sign that there are workers and resources going unused that could be put to work with looser money.
