Inflation Could Hit 4% After the Oil Shock. It Isn't a Short-Term Problem
Inflation has been relatively tame so far this year, with the consumer price index rising 2.4% on an annual basis in each of the past two months. The outlook for the coming months is a lot less benign, however.The surge in oil prices since the Feb. 28 start of the war with Iran is set to drive headline inflation back up to 4% in coming months. Even if oil retreats to well below $100 a barrel and the effects of tariffs moderate, inflation is unlikely to return to the Fed's 2% annual inflation target for at least a few years. Input costs are on the rise due to growing demand for artificial intelligence, firmer labor costs, and other factors.Even if the oil shock ends soon, the Fed could be looking at above-trend inflation for another few years due to structural changes in the economy, including deglobalization. "The world has changed in a way that has led to an upward tug on inflation," says Karen Dynan, an economics professor