Food and energy prices continue to rise

Prices for consumer goods rose broadly in January but this is not likely to deter the Federal Reserve from combating a slowing economy with even easier money.

The Consumer Price Index rose 0.4 percent last month and is up 4.4 percent on a year-over-year basis - this is the highest annual increase since 1991, excluding the post-Katrina period in late 2005.
Of course, the current CPI doesn't look much like the price index from back in the 1970s, but it's not calculated the same way either.

It really is unfair to compare the two due to the impact from the substitution of Owners' Equivalent Rent for real housing costs in 1983, the dramatic rise in inexpensive imported goods in recent decades, and the dubious quality adjustments that are now routine.

Here's a longer term chart:
Food prices rose 0.7 percent in January led by a 2.2 percent surge in the cost of fruits and vegetables. Energy prices rose 0.7 percent last month as well, paced by a 1.2 percent increase in gasoline.

Excluding food and energy, as economists are wont to do, consumer prices rose 0.3 percent last month and are now up 2.5 percent from year ago levels, the largest annual increase since last March.

Interestingly, a "food and energy only" index (data that the Bureau of Labor Statistics unfortunately does not supply, but which is easily calculated) has increased almost 11 percent over the last year and at a 20 percent compound annual rate in the last three months - now that sounds like a good idea for a new chart.

None of this is likely to stop the Federal Reserve from taking interest rates back into the "freakishly low" range next month as markets now expect another half-point cut in the short-term lending rate, from 3.0 percent to 2.5 percent.