Another tepid inflation report
I know. It's hard to not look at those gasoline signs while you drive to and fro. But if you can ignore them, you'll see that consumer inflation in the United States is quite simply not a problem.
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.5 percent in August, before seasonal adjustment, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. The August level of 196.4 (1982-84=100) was 3.6 percent higher than in August 2004.Yes, let's admit it. A one month leap of 0.5% and a 3.6% annual rate sounds scary. First, put things into perspective. Any inflation under 5% is low. Say it with me all together. Under 5% equals low. If you insist on fretting, I'll tell you that 3.6% is the highest annual CPI inflation rate in five years (since July 2000) and over the last six months the US is on a more worrisome 4.8% annualized inflation trajectory.
But hear me out.
The annual CPI inflation rate on all items less energy is a tame 2.2%. In fact, non-energy inflation has been amazingly stable since April 2004, fluctuating in a 2.0-2.4% band. Over the first half of 2005 non-energy consumer inflation is running at 2.3%, only slightly higher than the second half of 2004 (2.2%) and at the same annual rate of 2002.
Back in the bad ol' early 1980s, super-high energy prices drove very high general inflation. That's just not the story today as the below chart of annual non-energy consumer inflation by month shows.
If the Fed wants to reign in housing and energy inflation, by all means go to it. But raising interest rates on everybody and everything is hardly the best way of going about it.