Inflation still not a threat - Again

Sorry for the intermittent recent posts, been crazy busy at work, but more importantly let's talk about inflation, or the lack thereof. The core CPI rate increased only 0.061% in March, much less than expected and a great deal less than last months .02% gain. To cut to the chase there is basically no core inflation except for some lagging data derived from the owner's equivilant rent calculation from housing. Without all the fancy analysis just look at two things the TIPS spread (retreating) and the 10 year treasury (retreated to 4.68% today). The markets aren't seeing any inflation. So Chairman Bernanke, please lower the Fed Funds rate to match the market and keep prosperity rolling - 4.5% sounds good for now.

Some excerpts from leading ecnomists courtesty of the WSJ -

"There is no genuine inflation 'problem.' As we have argued on numerous occasions, we have been witnessing a reasonably sharp cycle in shelter costs particularly owners equivalent rents [an estimate of how much homeowners would charge to rent their residence] (which account for a huge 30% of core CPI). When OER inflation was low in 2003-2005 as residential house prices boomed, core CPI was flattened. When OER accelerated through 2006 even as residential house prices flattened out, all of a sudden a 'core' inflation problem emerged… If this economy has an inflation 'problem,' it is only coming from one source -- rents i.e. the imputed cost of housing." - Richard Iley, BNP Paribas

"Excluding the gain in OER, the core CPI was flat, suggesting a flat reading or possibly a 0.1% gain for the Fed's preferred inflation reading, the core PCE deflator. Gains in OER appear to have peaked in November of last year, and today's data suggests a deceleration from housing related-effects is underway. The core CPI itself appears to be decelerating, bucking a seasonal bias upwards in March, and is up 2.45% over the past year. Today's core inflation news is comforting. " - Steven Wieting, Citigroup Global Markets

For WSJ subsribers link to the full analysis and story here Link