Doug Kass (via The Street) makes the case that inflation is not nearly as "in check" as headline figures would have you believe (and a potential source for the upturn in interest rates over the past few weeks).
The current artificially low readings on inflation and its salutary impact on real incomes might create the false illusion that the U.S. consumer appears poised to contribute to a self-sustaining domestic economy. Indeed, the recent strength in first-quarter 2010 retail sales is now being comfortably extrapolated by many managements, strategists and analysts.
The reasoning behind the understatement is a combination of headline CPI being made up by ~1/4 owner's equivalent rent "OER", which is dropping dramatically as it has become a "renter's market". Unfortunately in Doug's eyes, with 2/3 of all U.S. household's owning there homes, this "relief" is not uniformly felt (detailed previously at EconomPic here). In addition, as the U.S. economy becomes more integrated with the global economy, he believes it isn't only price levels in the U.S. that matter. Back to Doug.
As an aside, a critical eye would question the myopic focus on the U.S. CPI within the context of a global economy. Global inflation rates matter over here (and so does the policy reaction to those rates over there). China and India's inflation rates are heating up -- there is no OER in their calculations of inflation -- and China's policy actions to deal with this are especially important to us. In fact, one could argue that, at times, the Chinese inflation rate could be more important for the U.S. than the U.S. inflation rate.
I think Doug has an interesting take on the global aspect of inflation, especially if the United States were to devalue its currency relative to its trading partners (this will make imports more expensive, all else equal going forward). I also think that in many cases, government data needs to be taken with a grain of salt. All that said, if the reported numbers are to be believed, they just don't seem to show that inflationary pressures are heating up.
The below chart shows the headline figure, the "core" figure (ex food and energy), and the "core less shelter" figure for comparative purposes. While the headline ex shelter CPI did increase over the last year, it still remains relatively low at 2.6%.