Implications: Consumer price inflation continues to accelerate. Although the CPI is up a moderate 2.7% in the past year, with a 0.5% increase in March, it's up at a 4.7% annual rate in the past six months and an even faster 6.1% rate in the past three months. We like to follow "cash inflation," which is everything in the CPI (including food and energy) but without owners' equivalent rent (the government's estimate of what homeowners would pay if they rented their own homes). Cash inflation increased 0.7% in March and is up at a 7.7% annual rate in the past three months. These increases have been led by energy which is up at a whopping 42% annual rate in the past three months. But "core" CPI is also accelerating. Core prices are up only 1.2% versus a year ago, but up at a 2% annual rate in the past three months. With many homeowners becoming renters, owners' equivalent rent – which is about one-third of the core CPI – should continue to push higher (see lower chart to right). Along with rising inflation expectations among consumers and investors, accelerating core inflation will make it harder for the Federal Reserve to justify keeping short-term interest rates near zero. Unfortunately, the Fed is likely to maintain its very loose monetary policy through at least year end.
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