KEY DATA: CPI: +0.1%; Over-Year: +1.7%; Ex-Food and Energy: +0.3%; Over-Year: +2.4%/ Real Earnings: +0.4%; Over-Year: +1.5%/ Claims: -15,000

IN A NUTSHELL:  “Whether or not inflation is low depends upon the measure you use.”

WHAT IT MEANS:  Is inflation tame?  The answer is, as it usually is with economic data, it depends.  Today’s inflation report was the August Consumer Price Index.  The rise was modest, as long as you include food and energy, which tend to bounce around.  Indeed, energy costs fell sharply while food costs were flat.  Excluding those components, though, consumer prices were up fairly sharply. What is driving that increase?  In August, it was a number of factors.  If you eat out, your tab keeps rising faster than most other goods.  If you are feeding a cake, cupcake and cookie habit, like me, you are paying more for those as well.  Medical expenses are once again soaring.  Men’s clothing prices are jumping as are women’s footwear.  Information expenses have risen solidly three of the past four months.  Shelter costs are seemingly always rising and if you travel, not only are airplanes uncomfortable but they are more expensive.  And used vehicle prices are soaring.  In other words, there are lots of goods and services whose costs are moving upward, at least according to the Consumer Price Index.

One of the problems with rising inflation is that it eats into consumer spending power.  At least in August, the modest top line increase allowed inflation-adjusted earnings to surge.  Both hourly wages and hours worked were up nicely and the inflation offset was limited.  That led to a strong gain in consumer spending power.  That said, the 1.5% rise over the year is nothing great and makes it hard to see how consumers can continue to keep the economy growing strongly without some help from other sectors.

One bit of really good news was the sharp decline in weekly jobless claims.  It is near its historic low level.  That shows that the labor market remains tight, which should limit the deceleration in wage gains.  MARKETS AND FED POLICY IMPLICATIONS:  The Fed is always mentioning that inflation remains below target, though they continuously state that it will eventually get back there.  The Fed uses the Personal Consumption Expenditure deflator as its benchmark and indeed, when you exclude the volatile food and energy components, inflation is below the 2% target.  But that is not the case with other measures.  The core Consumer Price Index, which excludes food and energy, is now rising faster than it has in eleven years.  There are a number of other indices that use the CPI but try to factor out volatile elements.  The Cleveland Fed’s median and trimmed mean CPIs and the Atlanta Fed’s Sticky Price CPI are also up at their highest pace this decade. In other words, there are some reasons to believe inflation is not nearly as tame as Mr. Powell thinks.  We will get the next reading of the PCE price index in two weeks and that is likely to remain below target.  What will be important is how much the core index rises and how close it gets to 2%.  The July increase over the year was only 1.6%, so it still has a way to go.  As for the markets, it is still all about trade and when hopes rise that the war will not go nuclear, markets do well.  When threats of a greater war are raised, the fallout shelter becomes a favorite place to hide.Right now, the news is positive.  If you know what it will be tomorrow, please tell me so we both know.