The last mile of inflation is the hardest

The October core PCE price index advanced at an annualized rate of 2.8 per cent, marking the fourth consecutive month that core inflation has remained cemented near three per cent. The data confirms the warnings of fixed-income skeptics: the 'last mile' of the disinflationary journey is proving to be an impenetrable structural barrier.

The Autoregressive Core Floor

While traded goods have delivered substantial disinflation, non-housing services and domestic wage momentum continue to compound at rates incompatible with the Federal Reserve's two per cent mandate. With the incoming administration promising an inflationary cocktail of universal tariffs, corporate tax cuts, and restricted labor supply, the Fed may be forced to accept an inflation floor well above its target.

The persistent plateau of core inflation near three per cent proves that the last mile is an uphill battle, warning central bankers that further rate cuts risk cementing a permanent inflation overshoot.