Chart Of the Day

Today, the Labor Department reported that the consumer price index fell 0.6% in November, the biggest drop since 1949. However, core inflation (which excludes the volatile food and energy sectors) was up a modest 0.2%. Today's data helps explain why economists/analysts bother to follow core inflation. They don't do so to manipulate the data (at least not the good ones). They follow various measures of inflation in part to determine if there is a significant divergence (as is currently the case) and then try to explain the divergence in order to better understand the prevailing economic environment. So what does the current divergence tell us? One theory has it that, due to China's resurgence, the current inflationary environment is largely commodity based (i.e. oil - China needs commodities) but not labor based (at least not yet - China has a large pool of cheap labor plus an artificially low currency). Regardless, today's inflation report provides some encouragement for the Fed to stop hiking rates sooner rather than later.