We’ll get the minutes from the FOMC meetings last week which will detail the internal discussions but what the Fed did say and have said all along is they’ll continue to monitor the situation and take action (raising rates) when necessary as long as inflation is kept in check and according to the Fed,is inflation up or not inflation is near the target rate of 2.00 percent per year.

But does it really feel like there is little to fear regarding inflation, something bond holders abhor. What’s included in the inflation rate?

The Fed gives a general explanation on their website of the process. The Fed surveys several classes of goods and services identified by the Department of Commerce as PCEs, or Personal Consumption Expenditures. Over the years, different goods and services were monitored and the items surveyed today won’t look like the same surveys conducted say in the 1980s. The inflation rate is reported once per month from data scoured from the previous month and there are two numbers, the calculated rate and the “core” rate which leaves out food and energy because, according to the Fed, they can be volatile from month to month and skew the reported number. But does that really make sense? It does perhaps to establish a mean but if counting PCEs is key, aren’t food and energy the most common of purchases?

For those who’ve been to the grocery store lately they’ve seen record high prices in meat, poultry and fish hit all-time highs. If you don’t spend any money on food then these prices won’t affect you, right? And if those same foods are in restaurants, and of course they are, then eating out just got more expensive. This isn’t a one month spike but an increase over time. One can make the case that political events can cause the price of oil to spike but when the price of a gallon of gas goes up, people tend to drive less. Unless you’re on a diet, you’re not likely to eat less food.