reaching levels not seen since the 1980s. as energy prices have moderated and supply disruptions have eased, inflation has followed suit and started to abate. last week, data on the consumer price index ( cpi ) 1 / 5 bis - central bankers'speeches showed 12 - month inflation falling to 5 percent in march from a peak of about 9 percent last june. the fed has a preferred consumer price measure, which is the personal consumption expenditures ( pce ) price index. it covers a broader set of goods and services than the cpi, and its weighting of individual prices can change each month to reflect consumer spending behavior. last week's data suggest that pce inflation likely will be somewhat above 4 percent in march, also significantly lower than last june. the big question, however, is whether, and how quickly, inflation will continue its downward path toward our target of 2 percent. much of the decline so far has been driven by the moderation in energy prices, and there is evidence that the path back to our low and stable inflation goal could be long and is likely to be uneven and bumpy. total ( or headline ) inflation tells us something critical about the effect on our daily lives - simply put, people need to eat, pay their bills, and get to work and school, among other things, and their budgets feel the impact. we also look at core inflation, which omits volatile food and energy prices and tends to give a more accurate signal of total inflation's trajectory. the rise and fall in core measures has been less dramatic than that of total inflation. we also look at other measures of underlying inflation, that try to get at the central tendency of inflation, such as median or trimmed - mean inflation. all of these measures have come off their peaks but remain elevated, suggesting that inflation has become broad based in the economy. of course, economic data are generally backward looking. one question is whether timely data can give us a sense of where inflation is going. to this end, i have found several useful sources of data. for instance, to forecast core goods prices - - which drove much of the initial surge in inflation - - i look at various measures of supply chain disruptions and input prices. those indicators helped predict the moderation in goods prices that emerged last fall. for automobiles, where shortages of semiconductors held down production and drove up prices for both new and used cars, i looked at wholesale used car prices as a leading indicator of retail prices. those

##encies. 3 recent reviews have highlighted potential costs of a distorted financial sector, but such reviews also emphasize the range of both theoretical and empirical work that has documented the many ways in which the financial sector can support economic efficiency ; see, for example, greenwood and scharfstein ( 2013 ) and zingales ( 2015 ). guiso, sapienza, and zingales ( 2004 ) discuss evidence that financial development supports entrepreneurship, and fort and others ( 2013 ) examine the importance of financing for business formation and young firms. greenwood and scharfstein ( 2013 ) discuss how an important fraction of growth in the u. s. financial sector reflects the greater demand of households for asset management services and credit. malkiel ( 2013 ) considers similar issues and reviews how improved access to low - cost investment options has benefited households. krueger and perri ( 2006 ) analyze how an increase in access to credit contributed to households ’ ability to smooth spending despite substantial income volatility. bis central bankers ’ speeches technological innovations have increased the ease and convenience with which individuals make and receive payments. 4 the contribution of the financial sector to household risk management and business investment, as well as the significant contribution of financial - sector development to economic growth, has been documented in many studies. 5 such research shows that, across countries and over time, financial development, up to a point, has disproportionately benefited the poor and served to alleviate economic inequality. 6 distorted incentives in the financial sector despite these benefits, as we have seen, actions by financial institutions have the potential to inflict harm on society. instead of promoting financial security through prudent mortgage underwriting, the financial sector prior to the crisis facilitated a bubble in the housing market and too often encouraged households to take on mortgages they neither understood nor could afford. recent research has raised important questions about the benefits and costs of the rapid growth of the financial services industry in the united states over the past 40 years. 7 a combination of responses to distorted incentives by players throughout the financial system created an environment conducive to a crisis. excessive leverage placed institutions at great risk of insolvency in the event that severe, albeit low - probability, problems materialized. overreliance on fragile short - term funding by many institutions left the system vulnerable to runs. and excessive risk - taking increased the probability that severe problems would, in fact, materialize. moreover, regulators – and the structure of the regulatory system itself