April's 1.3% annual core inflation says the Fed will stick to its current course

05/13/2011 4:41 pm EST


Jim Jubak

Founder and Editor, JubakPicks.com

No reason for the Federal Reserve to change course in this data.

This morning, before the markets opened, the Bureau of Labor Statistics released April inflation numbers for the U.S. economy. The headline Consumer Price Index climbed 0.4% for the month. That was a slight deceleration from the 0.5% increase in March. The core inflation rate, which excludes food and energy prices on the grounds that they’re so volatile (which is totally logical because consumers, scared of volatility, don’t eat or drive), rose 0.2% in April after climbing 0.1% in March.

The headline inflation number was exactly what economists were expecting, according to Briefing.com. The consensus among economists had called for a 0.1% increase in core inflation.

Even the categories adding the most to inflation showed a deceleration in price increases in April. Energy prices climbed 2.2% in April, down from the 3.5% increase in March. Food prices were up 0.4% after climbing by 0.8% in March.

April’s numbers bring the annual headline inflation rate to 3.2% for the 12 months that ended in April. The core inflation rate, the measure the Fed cares about, is now up 1.3% on an annual basis. That’s the highest rate of core inflation since February 2010 but still well below the Fed’s target of 2%.

What this all means is that the Fed will stay on its clearly signaled course and end its buying of Treasuries under its second program of quantitative easing in June and hold off on raising interest rates until late in 2011 or early in 2012.

Unless something radically changes in next month’s inflation data.

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