Nothing in today's inflation report to make the Fed change course

11/15/2012 1:58 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

Two normally important bits of economic news released this morning. Because of Hurricane Sandy, only one actually presents useful information. The other was rendered essentially meaningless by the storm.

Let’s start with the meaningless first.

Initial claims for unemployment rose to 439,000 for the week ended on November 10. That was a huge jump from the revised 361,000 for the week that ended on November 3.

Has the economy suddenly plunged into the void? Nah. The hurricane prevented thousands of newly laid off workers from filing their initial claims for unemployment in the previous week. The huge jump is a catch-up effect. It’s likely that we’ll see the initial claims number revert to its recent range of 360,000 to 400,000 in coming weeks.

Continuing to the meaningful side, inflation data showed that the headline Consumer Price Index (CPI) rose by 0.1% in October. That was down from a 0.6% increase in September. The core CPI, which excludes energy and food costs, rose by 0.2% in October. That was slightly above the 0.1% monthly increase from July through September.

The headline inflation rate dropped on a 0.6% decline in gasoline prices. The core rate was pushed up by an increase in rental housing, apparel, and transportation services.

For the last 12 months, the headline CPI is up 2.2% and the core CPI is up 2%.

The continued very subdued rate of inflation removes any pressure on the Federal Reserve to change its current policy of low interest rates and quantitative easing. In recent days members of the Fed have talked about possibly increasing the duration or volume of bond buying in the current round of quantitative easing. Any ramp up in the program probably will wait until the Fed has a better idea of the economy’s growth rate—and the results of current negotiations in Washington over the fiscal cliff—but the low inflation rate certainly gives the Fed more rather than less room to move if needed.

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