Disagreements over the inflation gauge that the Federal Reserve uses to determine monetary policy took center stage Tuesday at the Federal Reserve Bank of Boston's 53rd Economic Conference. Federal Reserve Bank of Boston President Eric Rosengren discussed the recent surge in food and energy prices, as the total consumer price index has increased at a rate of 3.9 percent in the last year alone.
"There remain significant disagreements over which factors are the most important determinants of future inflation," the Boston Fed President noted.
Due to the historically volatile nature of food and energy prices, which tend to fluctuate, the Federal Reserve does not account for these prices in the core inflation rate, the rate that is used to determine monetary policy.
"The observation that, of late, total inflation tends to converge to core inflation would seem to imply that higher food and energy prices have a significant concurrent impact on the total inflation rate, but have little contemporaneous effect on core inflation, and little or no lasting effect on either," Rosengren explained. "Food and energy prices, this observation implies, are likely to have little impact on longer-run expectations of inflation."
In recent months, the surge in food and energy prices has led to a high headline inflation rate, which accounts for food and energy costs. However, core inflation has remained relatively low. The absence of food and energy from Fed inflation policy has received some criticism, which Rosengren noted.
"Some have raised concerns that the future behavior of inflation may look different than the past, perhaps because food and energy price increases will no longer be transitory, but will instead become an enduring feature of the economic landscape," Rosengren noted. "Rising food and energy prices could become the norm if demand for these commodities outstrips supply on a continuous or prolonged basis."
Rosengren explained his view that total inflation should be the focus of monetary policy, rather than core inflation.
"In the long run, in my view, it is total inflation - rather than core inflation, which excludes the volatile food and energy components - that should be the focus of monetary policy," he said.
The Federal Reserve continues to expect a moderation in oil prices, despite crude oil continuing to defy all expectations in its rapid climb towards $150 per barrel. However, Rosengren expressed some doubts about this forecast, noting that the markets continue to rebel against those expectations.
"Economists expect that the laws of supply and demand will ultimately limit price increases - even in the face of relatively rapid economic growth in emerging markets," the Boston Fed President noted. "That said, it seems to be taking quite a long time to date for long-run supply and demand influences to rein in oil price increases."
"You might say the short run is getting longer every day," he added.
Rosengren disagreed with the notion that the weak dollar is behind the recent upsurge in oil prices.
"The exchange rate cannot explain more than a very small fraction of the change in the dollar price of oil," he said.
"Even if oil prices do continue to rise much faster than U.S. core inflation for an extended period, the experience of the past 20 years indicates that there is a relatively low correlation between oil price movements and the underlying core rate of inflation," Rosengren noted.
The two-day conference, celebrating the 50th anniversary of the Phillips' curve, features presentations from several economists on the issue of inflation.
"My hope for this conference is that each of us will gain a number of insights that will allow us to better understand our interesting and at times challenging macroeconomic environment," Rosengren said, "And that will help those of us who are policymakers to better serve the public's interests."
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.