In the first half of 2011, spikes in food and gasoline prices strained the budgets of many Americans and sparked fears of more persistent inflation.
Nonetheless, the Federal Reserve expected such price spikes to be temporary and forecasted the overall inflation rate to stay in the neighborhood of 2.5% in 2011, with the core consumer price index (which strips out food and energy) to grow in the range of 1.5% to 1.8%.1
The Fed focuses primarily on the core CPI — assuming it is a more accurate measure of long-term price movements — and aims to keep it near a target of 2% a year.
By that standard, consumers have experienced only moderate inflation over the last two decades. Many manufactured goods, such as clothing, computers, and many types of electronics, actually became much more affordable during this period.
Here’s a closer look at the reasons why some economists see the potential for higher prices in America’s future.
It’s possible that headline inflation, a broad measure that includes food and energy, may deserve more attention from policymakers going forward.