The Fed (and others) keep jawboning inflation. They say how worried they are about inflation. They claim inflation is running too high. But did you see the PCE numbers that came out on friday? Here's the number that includes everything:
The May PCE deflator came in at 3.1%, which is slightly below expectations.
It's also important to look at core inflation, ex food and energy. If the inflation hawks were right about increasing oil prices increasing the costs of everything else we buy, certainly we'd see the impacts in the core PCE, right? Take a look:
The hated core, ex food and energy, saw a modest increase of 0.1%, and was up 2.1% from the year earlier. Both measures were much better than expectations. The core is important to look at as it would indicate if rising food and energy prices were percolating down and contributing to a more generalized inflationary movement.
Over the past year, oil prices per barrel have gone up approximately 100%. The inflation hawks keep telling us that this drives up the costs of everything else. But the reality is that when you're sending more money to the OPEC cartel, you have less money to spend at home on everything else.
I don't expect the Fed to raise rates during the remainder of 2008. There is an election coming up, and the Fed prefers to remain on the sidelines. With inflation running low, and the economy sluggish because of high energy prices, the Fed will continue to keep rates low.
Yes, that is a pic of Alla Kudryatseva.