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Ylan Mui reports on the latest CPI inflation numbers:

Excluding the volatile food and energy sectors, prices rose a more modest 0.2 percent in April, a measurement economists often refer to as core inflation. Compared to a year ago, that figure has risen 2.1 percent….The solid data helps bolster the case for the Federal Reserve to raise interest rates at its next meeting in June.

Mui might well be right that this is how the Fed will choose to respond. But there are a couple of things that make this supposedly scary 2.1 percent number a little less impressive:

  • The core inflation rate did indeed go above the magical 2 percent barrier in December, but it’s gone back down for two months in a row since then and is now only barely above 2 percent. It doesn’t really look like core CPI is on fire.
  • The Fed doesn’t even use core CPI anyway. It uses core PCE as its preferred measure of inflation, and core PCE has been well below 2 percent during the past couple of years. What’s more, the markets all seem pretty convinced that inflation will stay below 2 percent. The forward-looking inflation rate has done nothing but tumble since 2013, and it’s at 1.7 percent right now.

The Fed might be looking for excuses to raise interest rates, but inflation just isn’t it. It remains subdued and well anchored. They’ll need some other pretense if they insist on tightening policy rates a bit.

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