“Nothing ado about inflation”

There was very little said about today´s CPI release. Funny that when inflation remains below target we don´t hear much, unlike earlier this year when it was thought that inflation was climbing towards the 2% target!

The Fed targets PCE inflation, which on average comes about 0.4 points below CPI inflation. The charts below give a pretty good indication that inflation has not been a problem for quite some time, particularly if you track the Core versions of the indices, which take out the noise from things like oil and commodity shocks!

Nothing Ado_1

Nothing Ado_2

The final chart illustrates how (CPI) long-term inflation expectations have behaved. Interesting to note that before the crisis hit, both the TIPS and Cleveland Fed measures of expected inflation were quite similar. I have no idea why that changed after 2008, but maybe they are “joining-up” again.

Nothing Ado_3

The charts seem to indicate that what the Fed has wanted for some time is really to keep inflation within a 1%-2% (1.4%-2.4%) band for the Core PCE (Core CPI). And they are doing a damn fine job, no matter what else is (not) happening!

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