More bad CPI data, Fed looks elsewhere for comfort

Consumer prices climbed 0.7 percent, the biggest increase since September 2005, led by a jump in gasoline costs. They were up 2.7 percent from the same time last year. These are bad numbers.

However, the Fed aren't looking at the CPI. Those bozos are looking at "core inflation", which excludes food and energy. These numbers show only a 0.1 percent rise in prices.

Lets get our concepts clear here; what is core inflation? It is a useless irrelevant measure that excludes all the prices that matter to ordinary Americans. It is con, a scam, a nonsense and a joke. Pay no attention to it. It tells us nothing about inflation. Do you know anyone who doesn't eat or doesn't need fuel?

Core inflation is a distraction. Rather than focus on the real issue, i.e. rising prices, the Fed tracks this meaningless index. The Fed would like us to believe that gasoline and food price increases are something that simply happen by accident and that it has nothing to do with them. Let us remind ourselves how the Fed's monetary policy directly causes the prices of these key items to increase.

The Fed maintained a policy of low interest rates far too long.

Moreover, interest rates continue to be too low

Consumers are still borrowing too much, consumption continues to grow quickly.

This increased demand pushes prices up for key consumer items, like food and gasoline.

These prices will only stop growing when consumers stop borrowing and reduce demand.

This will only happen when interest rates rise again.

So, the lesson is simple; the Fed must raise rates and keep on raising them until they regain control of inflation.

However, that is unlikely to happen because Bernanke is soft on inflation. He is weak.