Inflation: Total v Core

January 19th, 2012 at 10:31 am


I could see the talons of inflation hawks coming out over the trends in this figure…but they should retract them.

It’s from this AM’s CPI release from the BLS, showing 12-month changes in the total and core (excluding food and energy) price indices.  The all-in rate, which is what matters most to consumers (who have been known to drive and eat) and workers’ paychecks (more on that in a sec) has been growing more slowly of late.

Source: BLS

But the core rate has been rising and that’s the one more closely watched by the Federal Reserve for signs of inflationary pressures; 2% is kinda their comfort zone, so 2011’s 2.2% might strike some as worrisome.

You ask me, I don’t think so.  The core is hovering around 2%–it’s decelerated (not rising as quickly) in recent months.  And there’s still lots of slack in the economy in terms of the job market, industrial capacity, growth, etc.  There are more headwinds (Europe, oil, fading stimulus) than tailwinds.  And what mo’ we’ve got should still be nurtured with stimulative monetary policy, not shut down with a premature rate hike tilting at the phantom menace of core price pressures.

Note also that thanks to the deceleration of the total price index, real earnings…well, they’re not exactly going up, but over the past year they’re down 0.3%, compared to declines of more than 1-1.5% over the past few months.  That’s not coming from nominal wage pressures, which would further spook the Fed, but from the slower overall price growth seen above.

So, steel thy will and stay steady at helm, Captain Ben.


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2 comments in reply to "Inflation: Total v Core"

  1. Michael says:

    There’s no such thing as an “inflation hawk,” just a “rentier.”

  2. Chris G says:

    Question: To what extent is inflation being driven by US policy as opposed to things beyond our control? My sense as an interested citizen/non-economist is that inflation is being driven primarily by demand from countries like China and India, not by increasing the monetary base or any other US policy. If that’s true then it wouldn’t seem to make much sense to raise interest rates even if inflation were double what it is now. To cool inflation you want to raise rates for the people who are actually borrowing money and driving up prices, yes? If we’re not the ones driving inflation then why raise rates on ourselves? (I’m thinking out loud here. If my logic is junk then please call me out it.)