Will a Cooler Labor Market Slow Supercore Inflation?

Leduc, Sylvain; Wilson, Daniel J.; Zhao, Cindy

Journal Article

Will a Cooler Labor Market Slow Supercore Inflation?

Abstract: Given steady declines in price inflation for core goods and expectations that rent inflation will moderate over time, the outlook for nonhousing core services—or “supercore”—inflation has grown in importance. State-level data document a typically weak relationship between this indicator and unemployment rates, highlighting the stickiness of supercore inflation. The data show that its sensitivity to labor markets strengthened early in the pandemic recovery in connection with strong demand for service workers. However, it’s uncertain whether this sensitivity will remain heightened or return to its persistent pre-pandemic weakness.