Inflation Is Moderating, Except in the Data: The Ticker

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By Caroline Baum

Anyone monitoring signals intelligence on the subject of additional monetary stimulus had to notice a sharp increase in the chatter last week.

On Thursday, Federal Reserve Governor Daniel Tarullo, a lawyer by training, said the Fed should reconsider additional purchases of mortgage-backed securities to boost aggregate demand. The following day, Fed Vice Chair Janet Yellen seconded the idea in light of the "significant downside risks to the outlook" and said central bankers were prepared "to employ our tools as appropriate."

As Tarullo and Yellen were hinting at more quantitative easing -- purchasing long-term securities with money created out of thin air -- the Bureau of Labor Statistics showed us why that might not be such a good idea. The consumer price index rose 3.9 percent in September from a year earlier. Take out food and energy, and the increase was 2 percent, the top end of the Fed's implicit target.

The short-term trend -- a three-month annualized increase of 4.8 percent for the CPI and 2.1 percent for the core index -- is worse than the long-term trend. Rapidly growing emerging markets, such as China and India, are combating rising inflation. So are some slow-growing developed countries, such as the U.K., which reported a 5.2 percent year-over-year inflation rate for September.

In the U.S., the Fed keeps telling us inflation is moderating. So far there's no sign of it in the numbers. Saying it over and over won't make it so.

(Caroline Baum is a Bloomberg View columnist.)

-0- Oct/24/2011 14:39 GMT