Seduced by statistics

15 October 2010 By Martin Hutchinson

The core CPI hit its lowest annual rate in 50 years. With commodities soaring and inflation still present in producer and import prices, it looks as if labor conditions are suppressing consumer prices. The economy needs rebalancing, not more quantitative easing by the Fed.

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The U.S. consumer price index increased 0.1 percent in September on a seasonally adjusted basis, according to the Bureau of Labor Statistics on Oct. 15. Over the last 12 months the index increased 1.1 percent. The core CPI, which excludes food and energy, was flat in September and increased 0.8 percent over the last year.

The producer price index for finished goods rose 0.4 percent in September and was 4 percent above the previous year. The core measure was up 1.6 percent. The PPI for crude goods was up 20.3 percent compared with a year earlier.

Import prices fell 0.3 percent in September, but were up 3.5 percent from September 2009.

As for money supply, the St. Louis Federal Reserve's Money of Zero Maturity measure rose at a 9.9 percent annual rate in the three months to Oct. 4; the M2 indicator expanded at a 6.2 percent annual rate in the same period.

Ben Bernanke, the Federal Reserve chairman, gave a speech on Oct. 15 on monetary policy in a low inflation environment.

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