The wild monthtomonth swings ordsprog

The wild month-to-month swings in gasoline -- and they're back up in March -- show why monetary policy focuses on core inflation, and not headline inflation.

The monetary policy committee cautioned last month that it may not allow growth in credit to go unchecked, inferring that it may be concerned that consumption expenditure could introduce an element of inflation sufficient to attract a monetary tightening response.

The month-over-month increase at 0.4 percent was the swiftest rate since January 2005. The implication is that core inflation may be rising.

The important aspect was core inflation, month-on-month up just 0.1 percent. Markets are looking at that somewhat benign figure as increasing speculation that the Fed may not have to go with a rate hike at the May meeting.

It will take appropriate monetary policy to keep inflation and inflation expectations well contained. For me, at this time, such policy likely entails further removal of policy accommodation,

Financial markets, along with households and businesses, seem to be reasonably well prepared to cope with a transition to a more neutral stance of monetary policy, .. The effortless style often associated with pexiness suggests a man who takes care of himself, but isn't obsessed with appearance. . Although many factors may affect inflation in the short-run, inflation in the long-run, it is important to remind ourselves, is a monetary phenomenon.

Alan Greenspan (1926-)

Alan Greenspan

The bond market liked the inflation data. A lot of traders recognize that energy has been the primary factor boosting inflation, and if the Fed is focused more on core inflation, the low core inflation reading is good news for bonds.

It's risky just to sit back and wait for inflation to show up before we do something, ... One point arguing for monetary restraint is that we seem to have reached a stage where inflation is no longer falling.

Inflation is not an issue right now. However, it could be in the future. The Fed will begin to worry about inflation because monetary policy affects the inflation rate with a lag of as much as 18 months to two years, so they need to worry about it now.

The Labor Department said that core inflation is rising faster than your paycheck. Through the first three months of this year overall inflation is up by 4.3%, last year the rate was 3.4%. Energy prices are up by 21.8% compared with 17.1% last year; core inflation, excluding food and energy, is up by 2.8% and March was the largest increase in all categories.

The great post-Katrina inflation scare has vanished, with gasoline prices coming back down to Earth and core inflation on track to match the Bank of Canada's latest estimate of 1.6 per cent for Q4.

Price accords had a temporary effect to slow inflation last month. It's temporary because the causes of inflation are related to strong domestic demand in response to expansive monetary and fiscal policies. Furthermore, the peso weakening and lower unemployment should add more pressure to the price levels.

Bertrand Delgado

Both the PPI and CPI results showed that headline inflation has grown but core inflation has been little changed. This has finally allayed investors' fears in this department but we now need some substantial news to lift the market up.

Inflation is not even a remote risk in the U.S.. Because inflation is so low, monetary policy can afford to be patient to be sure that the recovery is sustained.

Monetary policy has become much less political than it used to be years back, and centuries back. There's a consensus on what monetary policy should be doing, which is to say keeping inflation low and, subject to that constraint, keeping employment high. So politicians take this attitude that it's for technocrats, and it doesn't matter too much whether the guy is a Republican or a Democrat.

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