Core CPI at a New Low Indicates That Inflation Cooling Is "Taking Root"

The latest U.S. core Consumer Price Index (CPI) has hit a nearly four-year low, a data point that holds significant reference value amid the current global economic turbulence. Core CPI excludes food and energy, providing a clearer reflection of the "intrinsic drivers" of inflation. When core CPI continues to decline, it is not coincidental but signals that the economy is gradually recovering from pandemic-induced shocks and supply chain disruptions.
The essence of inflation is the "decrease in the purchasing power of currency," and a decline in core CPI means that the upward pressure on prices for essential goods and services is easing, which is good news for consumers and businesses alike. Household real incomes are not being eroded too quickly by rising prices, and companies can make more accurate inventory and investment plans based on actual demand. Over the past few years, the Federal Reserve has raised interest rates to curb inflation, leading to higher borrowing costs and tighter corporate financing. But now, with inflation pressures easing, financial conditions may gradually loosen, leaving room for economic growth.
Additionally, the decline in core CPI may also reflect a reconciliation between the labor market and productivity. Previously high labor costs were a significant obstacle to rapid inflation reduction, but as job vacancy rates stabilize, employers' motivation to give raises has weakened. This temporarily alleviates wage-price spiral pressures, helping to cool core inflation.
Of course, a short-term decline in indicators does not mean that inflation risks are entirely eliminated, but the current data indeed demonstrate that inflation management has made at least phased substantial progress.