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Is the recent US CPI increase just noise?

By Ilene
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Is the recent US CPI increase just noise?

Courtesy of SoberLook.com

At her press conference yesterday, Janet Yellen dismissed the recent inflation report (see chart), that showed stronger price increases in the US, as "noise". Yellen was quite clear. Inflation remains below the Fed's target and is likely to stay there for quite some time. 

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

 

Source: Investing.com

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.
 

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

TIPS-based inflation expectations (source: Ycharts)


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 soon stalling in Japan (see discussion). But we have clear indications that at least for now, a firmer inflation rate in the US is not just "noise".

 

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