: it came in at 2. 0 percent in july — well below the 12 - month measure of core pce inflation. 15 the currently elevated level of inflation is driven by covid - related disruptions. as these covid - related disruptions subside, most forecasters expect inflation to move back down toward the federal reserve ’ s 2 percent long - run objective on its own. that is the sense in which currently high inflation is likely to be transitory. in that regard, the august monthly cpi reading was the first month with a notable retrenchment among covid - sensitive categories like hotels, used cars, and rental cars. the august 12 - month weighted median cpi was 2. 4 percent — less than half of the 12 - month cpi reading in august of 5¼ percent — suggesting significant skew in the distribution of price changes in the cpi basket. for more information on the weighted median cpi, see https : / / www. clevelandfed. org / en / ourresearch / indicators - and - data / median - cpi / background - and - resources. aspx. - 8so, i expect inflation to decelerate, and pre - covid inflation dynamics to return when covid disruptions dissipate. but with delta disrupting the rotation from goods to services and prolonging supply bottlenecks, it is uncertain just how fast and how much inflation will decelerate over the remainder of the year and into next year. therefore, i am monitoring a few upside risks closely. first, while rent and owners ’ equivalent rent both rose a moderate 0. 3 percent in the august cpi data, if housing services inflation moved up substantially more than expected, it could provide durable upward pressure on inflation. second, there is a risk that goods prices may not decelerate and return to precovid trends as is widely expected, for instance, if excess savings or disruptions to services result in persistently elevated goods demand. third, i will be watching for any signs that wage gains are feeding into higher inflation more broadly, but the evidence so far suggests that wage gains are broadly in line with productivity growth, and the labor share of income remains low relative to historical levels. to date, high markups and nonwage input costs appear to be more notable contributors to inflation than wage pressures. finally, i am vigilant for any signs that the current high level of inflation might push longer - term inflation expectations above levels consistent with

17, https : / / www. corelogic. com / intelligence / corelogic - us - annual - rent - growth - dropsfor - the - seventh - straight - month - in - november /. for a recent analysis of the lead – lag relationship between indexes of market rents for new tenants and the indexes of average rent for all tenants, see brian adams, lara loewenstein, hugh montag, and randal j. verbrugge ( 2022 ), “ disentangling rent index differences : data, methods, and scope, ” working paper series 22 - 38 ( cleveland : federal reserve bank of cleveland, december ), https : / / doi. org / 10. 26509 / frbcwp - 202238. - 8declining since then. 15 to the extent that the persistent components of these nonhousing services and core goods reflect common factors that are fading, such as pass - through from commodity and supply chain shocks, they are unlikely to be as cyclically persistent, as long as inflation expectations are well anchored. 16 of course, an extended period of high goods and services inflation resulting from a series of demand and supply shocks associated with the pandemic and the war could lead to a rise in inflation expectations, which would make it much more difficult to bring inflation down. 17 that is why it has been important for monetary policy to take a riskmanagement posture to defend the expectations anchor. and the evidence from marketand survey - based measures suggests that longer - term inflation expectations are well anchored, while year - ahead measures have recently declined but remain elevated. together, the price trends in core goods and nonhousing services, the tentative indications of some deceleration in wages, the evidence of anchored expectations, and the scope for margin compression may provide some reassurance that we are not currently experiencing a 1970s - style wage – price spiral. for these reasons, it remains possible that a continued moderation in aggregate demand could facilitate continued easing in the labor market and reduction in inflation without a significant loss of employment. 18 see martin almuzara, marek jarocinski, and argia sbordone ( 2023 ), “ the layers of inflation persistence, ” federal reserve bank of new york, liberty street economics ( blog ), january 5, https : / / libertystreeteconomics. newyorkfed. org / 2023 / 01 / the - layers - of - inflation