The financial media report that the consumer price index jumped in May. But the CPI is not the right index to watch if you want to know what the underlying price trend is. Far more reliable is the Median CPI. It’s the “steady Eddie” of price indexes. There was no change in the rate of increase in May: 0.2%. That was what it was in April, too. Also December, January, and February.
The CPI has been wildly volatile over the past four months. See for yourself.
Does this make a lot of difference? No. The Federal Reserve has said that as long as the CPI does not go above 2.5% per year, it will not change its QE3 program until the unemployment rate falls to 6.5%. The Federal Open Market Committee, which establishes FED monetary policy, said this in March.
In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.
Unemployment rose from 7.5% to 7.6% last month.
The FED will continue to counterfeit $85 billion a month, or a trillion dollars a year, to stimulate the U.S. economy. The FED’s economic policy-makers believe in a theory of economics that says that creating digits out of nothing which the U.S. government can then spend into circulation is the foundation of wealth creation. If this theory of wealth creation is true, this means there is lots and lots of wealth ahead of us.