Research from the Federal Reserve Bank of St. Louis, published on July 15, 2026, proposes a new method for measuring underlying inflation by excluding only gasoline and other fuel prices instead of the entire food and energy categories. The study suggests this narrower adjustment more effectively isolates persistent inflation trends from volatile energy price swings, which have been exacerbated by the Iran conflict. The proposal arrives as Fed Chair Kevin Warsh has prioritized reviewing the central bank's data and inflation frameworks. Market participants are monitoring the Fed's communication on inflation closely, with NEAR trading at $2.07, up 3.13% in the last 24 hours, as officials gauge the appropriate path for interest rates.
Context — Why this matters now
The current standard for core inflation, used by the Fed for policy guidance, strips out all food and energy prices, which together account for approximately 12% of average consumer spending. This broad exclusion has been criticized for omitting a significant portion of the consumption basket, potentially obscuring genuine price trends. The research gains immediate relevance against a backdrop of heightened geopolitical tension, where oil price volatility linked to conflict in the Middle East is distorting headline inflation readings. The last significant debate on inflation measurement occurred in 2021-2022, when supply chain disruptions blurred the line between temporary and persistent price pressures, leading to a delayed policy response.
Fed Chair Warsh signaled a focus on this issue early in his tenure, establishing internal task forces to examine data integrity and policy frameworks. The St. Louis Fed's research directly feeds into this ongoing review, offering a tangible alternative that could be adopted if it gains traction among policymakers. The timing is critical as markets, including the NEAR token with a market cap of $2.69 billion, attempt to decipher the Fed's reaction function amid conflicting signals from volatile commodity markets and moderating core services prices.
Data — What the numbers show
The research analysis identifies energy goods, particularly gasoline, as the most volatile component within the personal consumption expenditures (PCE) price index. By focusing the exclusion solely on these items, the proposed measure retains food prices, which exhibit less volatility and may contain more signal about underlying demand pressures. The standard core PCE index has averaged approximately 2.5% over the past year, while headline PCE has fluctuated more widely due to energy costs.
For comparison, the 24-hour trading volume for NEAR stands at $179.08 million, reflecting the high volatility often associated with assets sensitive to macro liquidity conditions, akin to energy markets. The study's proposed measure would result in a core inflation series that tracks more closely with the headline figure during periods of food price stability but diverges significantly when gasoline prices spike or collapse. This contrasts with the traditional core measure, which can diverge from headline inflation for extended periods when both food and energy move in tandem.
| Inflation Measure | Components Excluded | Volatility Profile |
|---|
| Headline PCE | None | Highest |
| Traditional Core PCE | Food & Energy | Lower |
| Proposed Core PCE | Gasoline/Fuel Only | Intermediate, more reactive |
Analysis — What it means for markets / sectors / tickers
Adoption of a gasoline-only core measure would likely alter the market's perception of the inflation landscape. Sectors tied to consumer staples and food production, such as ETFs like the Consumer Staples Select Sector SPDR Fund (XLP), could see increased correlation with core inflation reports, as their pricing power would be more directly reflected in the key metric watched by the Fed. Energy sector equities, represented by funds like the Energy Select Sector SPDR Fund (XLE), might experience reduced direct impact from core inflation releases, though they would remain highly sensitive to headline figures and geopolitical events.
A key limitation of the proposed measure is its potential sensitivity to domestic fuel policy and refining capacity, which could introduce new distortions unrelated to broader macroeconomic demand. If policymakers begin referencing such a gauge, it could lead to a recalibration of interest rate expectations, particularly in the short-term funding markets. Trading flow data suggests that macro hedge funds have recently increased short positions on Treasury inflation-protected securities (TIPS), betting that traditional core measures will overstate the persistence of inflation. A shift in the Fed's preferred gauge could force a rapid unwind of these positions.
Outlook — What to watch next
Market participants should monitor the minutes from the upcoming Federal Open Market Committee meeting on July 29-30 for any discussion of alternative inflation metrics. The tone adopted by Chair Warsh in his post-meeting press conference will be critical for assessing the internal support for such a methodological change. Key levels to watch include the 2.5% threshold on the traditional core PCE; a sustained move above this level under the new measure would likely solidify market expectations for a more hawkish policy stance.
The August 15 release of the July PCE report will provide the next major data point, offering a live test of how the proposed measure compares to the standard indexes. Further commentary from regional Fed presidents, particularly from the St. Louis Fed, will indicate whether this research is gaining institutional momentum. The evolution of the Iran situation and its impact on oil prices remains the dominant wildcard, with any escalation likely to widen the gap between headline inflation and any core measure.
Frequently Asked Questions
How would a gasoline-only core CPI differ from the current core CPI?
The Consumer Price Index (CPI) also uses a core measure that excludes food and energy. Applying the St. Louis Fed's methodology to CPI would create a gauge that is more inclusive, capturing price changes in food at home and restaurants. This could show a different inflation trajectory if food inflation is running notably hotter or cooler than the average of other core services, providing a potentially more nuanced view of domestic price pressures facing consumers.
What is the historical performance of energy prices versus food prices in inflation data?
Historically, energy goods prices have been significantly more volatile than food prices. For example, during the 2008 financial crisis and the 2020 pandemic, energy price swings exceeded 30% on a monthly annualized basis, while food price changes were typically contained within a 10% band. This volatility is the primary justification for the research's focus on isolating energy goods rather than applying a broad-brush exclusion to both categories.
