Since Ben Bernanke became chairman of the Federal Reserve a year ago, he’s been talking up the moderating influence that a slowing economy will bestow on general price trends. In that time the economy has in fact slowed, but the jury’s still out on whether the moderating forces will deliver salvation on the inflation front.
Today’s report on January consumer prices offers one more reason to reserve judgment. Yes, top-line inflation appears contained, but core inflation (which excludes energy and food prices) continues to inch higher, as our chart below shows.
Core CPI is now running at a 2.7% annual pace through last month. That’s up from 2.6% for 2006 and close to the peak of recent years (2.9%) set last September. The rising pace of core inflation is a problem because the Fed is widely reported to have a target of 1-2% for core. By that standard, the central bank is behind the monetary eight ball.