Inflationpalooza!

The idea of Core CPI comes in for a lot of ribbing, but today’s report shows why it can be more valuable than the headline number. Thanks to the big drop in oil, headline inlfation dropped 0.5% last month, but the core rate rose 0.2%.
What’s more, the data from one year ago included a big jump in energy prices, this was just after Hurricane Katrina. So the year-over-year number for headline inflation dropped from 3.8% in August to 2.1% in September.
By looking at the core rate, it also seems that the Fed still might be going too easy on inflation. Real rates are currently running at around 2.3%, which is less than where they were during much of the 1990s.

Note that this is an imperfect data set because it compares trailing inflation to today’s Fed funds rate.

Posted by Eddy Elfenbein on October 18th, 2006 at 9:27 am

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