Inflation Eases But Path to 2% Remains Challenging

After surging in 2022, inflation has fallen but the final drop to 2% could be challenging as remaining inflation is driven more by domestic forces concentrated in services.

Views differ on how close inflation now is to 2% if shelter costs are excluded, but the path down from here will determine when rates can be cut.

Early inflation was driven by oil and goods prices which have eased, but shelter inflation remains high, especially rents which reflect housing supply/demand issues.

Wage growth remains strong while productivity has dropped, concerning for future inflation if continued.

Core inflation measures have stabilized but need to clearly move down before rates can be cut, and economic "excess supply" has emerged but more progress needed on expectations.