Even Core Inflation Is Starting to Pick Up

Like a lot of observers, I’m pretty skeptical of the government’s inflation numbers. I think this data is skewed to under-report the amount that prices are increasing.

As far as inflation goes, I’m a pragmatist. I’m not going to predict that hyper-inflation is just around the corner — and as far as I can see, ruinous inflation isn’t a problem that currently plagues us.

That’s why I was surprised to see that today’s inflation report showed a very modest increase in consumer prices for January. The sound bite that you’ll see on most news report is that headline inflation rose by 0.4% which was 0.1% more than expected. The “core rate,” which excludes food and energy, rose by 0.2%.

I looked at the core rate, which is the rate that many economists prefer. I then took the seasonally adjust core rate and annualized each monthly reading. The rate for January was 2.06% which is the highest since October 2009.

Overall, that’s still a low rate. However, inflation tends to be a very trend-friendly data series, meaning higher inflation often begets still higher inflation. The chart below shows that the trend for the past few years has been lower inflation. Today’s data point seems to break that trend.

Of course, this is just one data point. But even using the numbers that the Federal Reserve uses, the evidence that the deniers prefer may be telling us a change is underway.

Posted by on February 17th, 2011 at 9:41 am


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