WHICH IS WHY THEY CALL IT A LAGGING INDICATOR:

Core inflation rises 0.3% in May (Rex Nutting, Jun 14, 2006, CBS MarketWatch)

U.S. core inflation increased 0.3% for the third month in a row in May, putting pressure on the Federal Reserve to keep raising interest rates.

The consumer price index increased 0.4% in May, led by higher energy and shelter costs, the Labor Department said Wednesday. The increase matched expectations.

By the time the volatiles can work through to raise the core they're already falling.

MORE:
New fear: A Fed gone too far: OK, another rate hike is baked in. The worry now is whether the Fed will overshoot and cripple the economy. Uttering the 'R' word (Chris Isidore, June 14, 2006, CNNMoney.com)

The debate about the Fed and rates is over. Long live the new debate. [...]

[T]he possibility of significantly higher rates was what was worrying some on Wall Street Wednesday.

"We don't really fear inflation, we fear the medicine," said Art Hogan, chief market analyst at Jefferies & Co. "The real fear is that the Fed goes too far and really slows the economy down more than we would like to see. The medicine, if you take too much of it, can cause a recession."
Already higher than neutral?

Some economists argue that the Fed may have already gone past "neutral" in setting short-term rates; a so-called neutral fed funds rate would neither spur nor slow the economy.

Jeoff Hall, chief U.S. economist at Thomson Financial, said he would put the neutral rate at about 2 percentage points above the core rate of inflation, which strips out volatile food and energy prices. Even with the core CPI rising to 2.4 percent in Wednesday's report, that suggests the Fed passed neutral two or three rate hikes ago.

Posted by Orrin Judd at June 14, 2006 9:22 AM