Today’s soft CPI report may have been skewed by quirks in the numbers and the Fed isn’t worried, writes WSJ Fedwatcher Jon Hilsenrath today.
Hilsenrath is sometimes viewed by the market as an insider who gets leaked info, although I highly doubt that.
Even though inflation measures have fallen sharply in recent months, Federal Reserve officials aren’t ringing alarm bells about it as they have done in the past.
Today’s story from Hilsenrath was published in the past hour but reads like it was written yesterday, before the soft CPI reading.
The CPI index has its own quirks — including the heavy weight it places on home rental costs. Still, it might be telling a meaningful story about the true underlying inflation trend. Up 1.7% from a year earlier, the core consumer price index change suggests that inflation has indeed slowed, but not to the alarmingly low levels that the PCE numbers imply.
That — along with stable inflation expectations — helps explain why Fed officials themselves haven’t yet expressed too much concern about inflation getting too low or deflation threats growing.
Headline CPI fell to the lowest since 2010 today, at +1.1% compared to 1.3% expected. The trend is more important than the absolute level, and the trend is down. If more signs point to falling prices, the Fed will begin to fret.
All-items CPI May 16, 2013