The Consumer Price Index for January 1020 was released today. On the surface, it showed momdest inflation of 2.1% over the past 12 months, as the table below shows. Beneath the surface, in its components, the CPI shows that the real situation is very different. There is a 45.2% difference between the highest annual inflation figure (36.8% for gasoline) and the lowest figure (-8.4% for gas utility costs). Five of the figures are above 10%. Six of them are below zero.
The job of the Fed is price stability–to keep prices stable so people will be able to predict their revenues and expenses and make long-term decisions. No rational person could look at these figures and make any long-term decision.
This is important to keep ttrack of because the direction of future inflation is the wild card for the economy and the stock market. The Fed’s bailout efforts have increased the stock of bank reserves by more than 1200% in the past 18 months, which screams future inflation. The Fed’s announcement this week represents that inflation is under control and they will be able to extract the reserves from the market before inflation shows up. I am skeptical of their qbility to do that.