The WSJ details:
So-called core inflation, which excludes energy and food prices and is closely watched by the Federal Reserve, inched ahead by 0.1%, the first move after three flat months.Year over year changes show INFLATION IS NOT AN ISSUE.
Economists surveyed by Dow Jones Newswires ahead of the release expected consumer prices to rise by 0.2% and core CPI to gain 0.1%.
The Fed considers core inflation a better measure of price trends because it excludes the most volatile components of the index.
The annual underlying inflation rate was 0.8%, well below the Fed's informal inflation target of between 1.7% and 2%. The Fed's policy-making committee Tuesday signaled that it thinks core inflation remains too low--a key factor in last month's decision to start buying $600 billion in Treasury bonds in an effort to boost investment and consumption.
Source: BLS
What if food and energy prices are permanently higher and are consuming more of a family's income percentage wise? Are we going to continue to ignore them just because they are "volatile"?
ReplyDeletePermanently higher price levels would not cause CPI to increase going forward. A permanent increase in growth rate of food and inflation would (remember, inflation rate is a year over year figure, not a level).
ReplyDeleteThat said, I agree with your argument. BUT, if that were to happen, there would likely be less money available for other goods / services (not a good thing), which would cause core CPI to fall.
More here: http://econompicdata.blogspot.com/2010/12/ppi-jumps-is-core-inflation-in-our.html