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Is the Recent US CPI Increase Just Noise?

By Sober Look

At her press conference yesterday, Janet Yellen dismissed the stronger than expected CPI report, as “noise”. She was quite clear. Inflation remains below the Fed’s target and is likely to stay there for some time.

Inflation sensitive assets such as gold however rallied in reaction to this dovish stance from the Fed.


If the CPI report from the US Bureau of Labor Statistics was “noise”, is there another indicator that can give us a sense of where prices are headed? Today’s Philly Fed report provided one such an indicator. The Manufacturing Prices Paid Index clearly showed firmer upstream prices.

Philly Fed Manufacturing Prices Paid Index

And market-based inflation expectations, while still relatively low, have definitely moved up recently.

5y Breakeven


Certainly the Fed wants to see this trend sustained for some time. After all, inflation remains at dangerously low levels in the euro area and we could see price increases stalling in Japan later this year (see discussion). But we have clear indications that at least for now, firmer inflation in the US is not just “noise”.

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