The Fed cares about what they can’t undo quickly: services, shelter, wages, and whether long-run expectations are drifting. This page decomposes the monthly print into its durable vs. reversible components. If sticky and shelter and wages are all elevated, the Fed is structurally tight regardless of where headline prints. If only flexible/energy is hot, the situation reverses in one bad oil print. Related: regime view, cycle position.
The takeaway from all four signals below, distilled. Detail sections follow.
Three measures of the same thing with different baskets and volatility profiles. Headline (with food & energy) is the press-cycle number. Core CPI strips those out for persistence. Core PCE is the Fed’s explicit target (2.0%), uses flexible basket weights, and runs ~30bp below Core CPI structurally. Watch for divergence: when headline drops below core, the energy cycle is rolling over; when core drops below headline, goods disinflation is accelerating.
The Atlanta Fed splits the core CPI basket by how often prices change. Sticky (rent, medical, education, insurance) reprices annually or less. Flexible (used cars, apparel, lodging, energy goods) reprices monthly. Sticky-price inflation is the Fed’s real target — you can’t talk it down with rate cuts. A regime where flexible is cold and sticky stays hot = “services inflation problem” — historically requires sustained restrictive policy.
Breakevens = nominal minus TIPS yield at each tenor. The 5-year breakeven reflects the next 5 years of expected inflation + a risk premium. The 5y5y forward is the market’s view of the average from years 5 through 10 — it strips out the current inflation dynamics, so it’s the cleanest read on whether long-run expectations are anchored near the Fed’s 2% target. UMich’s consumer 1y expectation is the survey comparison — consumer expectations tend to be volatile and reflect grocery prices as much as policy credibility.
Wages drive services prices (labor is the largest services cost). Shelter is ~35% of Core CPI and lags actual rent dynamics by 6–12 months (BLS methodology), so when shelter is rolling over it’s likely to keep rolling. Real wages = AHE YoY minus Core CPI YoY — negative real wages eventually compress consumer demand and break the inflation cycle.