Hanging the Inflation Bogeyman Once and For All

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The U.S. Labor Department has released its reading on retail inflation for August via its monthly Consumer Price Index report. Inflation only jumped by 0.1% on the headline and also by only 0.1% on the core rate, which excludes food and energy. Bloomberg was looking for a 0.1% gain on the headline but a 0.2% gain on the core rate.

August’s reading was on the heels of a 0.2% gain in July for both the headline and core reading. In short, the inflation bogeyman is just not currently present. The recent drop in interest rates may signal even fewer fears in the weeks ahead.

The big caveat is that the FOMC has started its two-day meeting. It is expected to address quantitative easing and to discuss when some tapering could be expected. Investors need to know that some expect the bond purchases of $85 billion per month could start to see some tapering off as soon as this month or the next, likely ending in the first half of 2014.

The only real worry about inflation present in the minds of market participants at the current time is the price of energy. If oil prices jump again due to Middle East fears or some other situation, then the bogeyman is likely to be a fear for more than just children going to sleep each night.