The US CPI report for June, published on Friday, was the fourth successive monthly print that surprised on the low side. Initially, these inflation misses were dismissed by the Federal Reserve as idiosyncratic and temporary, but they are now becoming too persistent to ignore. If they are not reversed fairly soon, the FOMC will need to give greater weight to the possibility that inflation may not return to target over the next couple of years.

Janet Yellen appeared to open the door to this possibility for the first time in her evidence to Congress last week. In a distinct change of tone, she specifically mentioned uncertainties about “when and how much inflation will respond to tightening resource utilisation”, thus acknowledging the possibility of alterations in the Phillips Curve.

She also emphasised that monetary policy is not on a preset course, adding that the FOMC will be carefully monitoring whether the recent decline in inflation is reversed in the months ahead. Normally, her guidance on data is more even handed, without specifically highlighting downside inflation risks.