Core Inflation

The latest inflation numbers are out [for September, you can read about it here] and they make for grim reading: the highest increase for 25 years. The problem stems from energy which saw price rises of 12%. So why isn’t there panic on Wall St.? Because they focus on what they call ‘core inflation’ which handily for them excludes energy. So unlike you and me who will feel the pinch from energy price increases stock pundits and their like applaud the fact that ‘core inflation’ was tame [it increased 0.1% for the fifth straight month]. My question is: who pays ‘core inflation’ prices? Not consumers who bear the brunt of all prices; not corporations whose costs will rise; not anyone at all. So why get giddy over ‘core inflation’? It’s a statistical device to smooth out volatile things like energy costs. The problem is that it the proper technique for doing that is to look at three or six month moving averages of the entire index, not by the elimination of volatile components. So we should all ignore the market’s calm and begin to worry what this all might mean. One thing we know for sure is that Fed will have to keep raising interest rates. Another is that we will have less cash in our pockets come this buying season. How can stocks not suffer sometime? The market is betting that energy costs have suffered a one time spike: do we believe that? I don’t for one.