Better, Not Best

In and of itself, the report on consumer price inflation in June wasn't bad.  From the Cleveland Fed:

According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (2.5% annualized rate) in June. The 16% trimmed-mean Consumer Price Index rose 0.2% (2.1% annualized rate) during the month.  The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics' (BLS) monthly CPI report.

Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers rose 0.2% (2.3% annualized rate) in June.  The CPI less food and energy rose 0.2% (2.8% annualized rate) on a seasonally adjusted basis.

Except for the CPI less food and energy -- a measure of core inflation that I would invite you to jettison in favor of the trimmed-mean -- developments on the inflation front appear to be improving:

   

   

So what, then, explains this sort of headline?

Inflation Still a Top Concern for Bernanke

Consumer Price Growth Slows in June

The Chairman explains:

Although the most recent readings on core inflation have been favorable, month-to-month movements in inflation are subject to considerable noise, and some of the recent improvement could also be the result of transitory influences...

It's pretty easy to see what Chairman Bernanke is talking about...

   

   

... and lest it isn't obvious, the Chairman's testimony highlights the concern:

Moreover, if inflation were to move higher for an extended period and that increase became embedded in longer-term inflation expectations, the re-establishment of price stability would become more difficult and costly to achieve.  With the level of resource utilization relatively high and with a sustained moderation in inflation pressures yet to be convincingly demonstrated, the FOMC has consistently stated that upside risks to inflation are its predominant policy concern.

  "Yet to be convincingly demonstrated" seems about right:

   

   

Commenting for the Wall Street Journal's Real Time Economics blog, Bank of America's Peter Kretzmer put it this way:

Bernanke, in his wording, clearly indicated that the FOMC is eyeing headline as well as core inflation. While longer term empirical research still favors the notion that current core inflation is a better predictor of future headline inflation than current headline inflation, supplying the rationale for emphasizing core inflation in monetary policymaking, a decade in which headline inflation has persistently exceeded core inflation as oil prices have generally moved only upward has the FOMC (and others) thinking about the issue… We can expect to hear more on this issue in coming months, from a number of Fed members including Bernanke.

Isn't that how it ought to be?