Core CPI has spent the past year drifting sideways in the mid-2% range rather than completing its descent to target -- but the market's own long-run inflation anchor hasn't moved. That gap is the more important story.
US core CPI inflation fell sharply from 6.05% year-on-year in January 2022 to a low of 2.47% in February 2026 -- a genuine, large disinflation. But it has not continued cleanly toward the Federal Reserve's 2% target since: readings over the following four months drifted back up to 2.82% (May 2026) before easing to 2.57% (June 2026), a sideways wobble in the mid-2% range rather than a completed landing. Despite this, the market's long-run inflation anchor -- the 5-year, 5-year-forward breakeven inflation rate, derived from Treasury Inflation-Protected Securities and covering 2003 to today -- has stayed remarkably stable at 2.2-2.3% for the past several years, close to its full-sample average of 2.25%, and only briefly deviated outside a narrow band during the 2020 deflation scare (1.35%) and the 2022 inflation panic (2.36%). The market is currently pricing the current CPI wobble as noise around an anchored long-run regime, not as evidence of a new one.
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