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The pundits hail a low core inflation; but food and energy are through the roof!

Can this be considered low core inflation?

Yesterday, the Labor Department (DOL) reported its monthly Consumer Price Index (CPI) with a 0.6 percent rise for the month of March.  This comes after a rise of 0.4 percent in February.  March’s annualized rate would be 7.2 percent.  This is much higher than what is generally assumed to be an acceptable rate of inflation by the ever vigilant Federal Reserve.

But wait!  Officials were quick to point out that the core rate which excludes food and energy was up only up 0.1 percent.  This rate was held down by medical costs (flattish), apparel (-1.0%, the largest drop in nine years) and hotel costs (-2.3%).  Some pointed out that this low core rate was actually a change in direction after higher readings in January and February.  A most perplexing result for me was that the bond market actually rallied in price with both the 10 year and the especially sensitive 2 year bond both dropping in yield (bond yields move inversely with price).

In a separate report I heard that gas prices have increased over 30% in the last couple of months.  I seem to remember $2.09 per gallon in the beginning of February.  Now, it’s almost three bucks in the middle of April.  That’s big and fast.  I don’t know about you, but my family seems to buy more food and gas on a constant basis than anything else including “gardening and lawncare services”, an item listed as increasingly important by the DOL.  And if fuel prices stay high they will eventually affect the price of other good and services.

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