A little over a week ago, one of the Fed governors was in Queens, New York, to make a presentation about the Federal Reserve and the current economic situation of the area. The topic came around to rising prices, and he was asked, "When was the last time, sir, that you went grocery shopping?" He started to explain about how there are prices that go down, especially technology goods like iPads. News reports say the crowd guffawed, and someone said, “I can’t eat an iPad.”

...the core CPI only applies to “anorexic pedestrians.”

There has been great concern among analysts and the public about Fed statements that inflation is tame, while there are obvious and regular increases in gas and food prices lately. In news reports, the phrase “core inflation” is often used in explaining the Fed's view. ”Core inflation” excludes food and energy products, which are considered to be volatile, leaving steadier products in the calculation. The fear is that volatile items create “noise” that obscures true inflation trends. The idea is that there can be food and energy inflation for short periods, but policymakers only need to be concerned when those inflationary forces begin spreading to other goods and services. Otherwise, changes in food and energy prices may signal inflation problems when there are none on a longer term basis, the statistical equivalent of “crying wolf.” The core CPI does not have a good track record as an inflation indicator as recent research, and many other analyses have shown over the years. One veteran Wall Streeter once proclaimed that the core CPI only applies to “anorexic pedestrians.”