MM Money

Inflation Is Tame, Right?

Excerpt: A delicate balance is required to deal with inflationary pressures, and that's where the Federal Reserve comes in. Now in the thick of a campaign of interest-rate tightening, the Fed recently raised the federal-funds rate by a quarter of a percentage point to 2%. It has had to keep an eye on inflation (virtually nonexistent until recently) and job growth (again, virtually nonexistent until late), while slowly cranking up interest rates to a more normal level.

HEAR THAT NOISE? That's the sound of inflation percolating.
Wednesday's report on consumer prices showed that pricing pressure is increasing some, although not as much as Tuesday's surprising wholesale price data would've suggested. The headline consumer price index increased 0.6% in October, the largest rise since May. The reading was three times September's 0.2% and more than the consensus forecast calling for 0.4%.

Digging deeper into the numbers, the overall CPI was boosted by a 0.5% increase in food and beverages, a 2.3% increase in transportation and a 4.2% increase in energy. But after stripping out volatile food and energy prices, which tend to fluctuate considerably from month to month, the core index rose by a tamer 0.2%. That was a tad higher than economists' expectations for a 0.1% increase, but a hair less than September's 0.3% jump.

Wednesday's CPI report follows on the heels of Tuesday's producer price index, which tracks price changes at various manufacturing levels. The headline PPI surged a surprising 1.7% in October, according to the Labor Department. That was far more than September's measly 0.1% increase and the 0.6% gain that economists forecast, and marked the largest jump in nearly 15 years. A 6.8% increase in energy prices and a 1.6% hike in food prices proved the biggest boosts to the overall index, but those weren't the only places that pricing pressure was evident. Excluding volatile food and energy, the core PPI still rose 0.3%, considerably more than the 0.1% gain expected by economists.

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