The first two are referring to total CPI, which spiked due to high gas and oil prices, while the third refers to the core CPI (excludes oil and food), which matched forecasts.
I think that food and energy price changes are treated differently than price changes on other goods. For example, if core inflation (which doesn’t include food and energy prices) shoots up, the Fed will need to raise interest rates to fight off inflation. However, if core inflation is steady, but food and energy are off the charts, it indicates that the economy may hit a rough spot, and the Fed may need to actually cut rates in the not-too-distant future. That’s because energy costs can create a recessionary environment, which will necessitate holding or cutting interest rates in order to moderate or prevent a downturn.
So, the market doesn’t really care about food and energy prices. It cares strongly about core inflation.
If energy prices continue to go up and remain at a high level for an extended period of time, I believe the market will start to care about that too. What is a high level? Beats me. I don’t really think energy is expensive enough right now to create a recessionary environment, but IANAE (I Am Not An Economist).
SP said,
June 15, 2004 at 16:05
The first two are referring to total CPI, which spiked due to high gas and oil prices, while the third refers to the core CPI (excludes oil and food), which matched forecasts.
George Johnston said,
June 15, 2004 at 18:10
So as long as we don’t eat and don’t go anywhere then all will be hunky dorey…
Charles2 said,
June 15, 2004 at 21:40
Magic, voodoo, economic words…
I had one course in macro-economics in college: all those damned curves. I swore then and still maintain that it’s all smoke and mirrors.
Science, my ass!
Paul Stone said,
June 15, 2004 at 22:08
I think that food and energy price changes are treated differently than price changes on other goods. For example, if core inflation (which doesn’t include food and energy prices) shoots up, the Fed will need to raise interest rates to fight off inflation. However, if core inflation is steady, but food and energy are off the charts, it indicates that the economy may hit a rough spot, and the Fed may need to actually cut rates in the not-too-distant future. That’s because energy costs can create a recessionary environment, which will necessitate holding or cutting interest rates in order to moderate or prevent a downturn.
So, the market doesn’t really care about food and energy prices. It cares strongly about core inflation.
Paul Stone said,
June 15, 2004 at 22:09
I meant to say, “That’s because high energy costs can create a recessionary environment…”
Paul Stone said,
June 15, 2004 at 22:13
If energy prices continue to go up and remain at a high level for an extended period of time, I believe the market will start to care about that too. What is a high level? Beats me. I don’t really think energy is expensive enough right now to create a recessionary environment, but IANAE (I Am Not An Economist).