Of course the Fed says inflation is transitory

After this week’s CPI & PPI showed the same old tame core and higher all-inclusive inflation, and manufacturing surveys from New York and Philadelphia regions showed contracting activity and inflation easing off a bit, I asked Dick Lepre what he thought about the Fed’s ‘inflation is transitory’ refrain. I was considering doing a longer piece on the core vs. headline inflation debate, but he’s got it down to a few sentences:

“Inflation is bifurcated: commodities vs. everything else. It seems to me that the only effects of QE2 were higher equities, a weaker dollar, and the consequent higher commodity prices. Inflation will remain contained because unemployment is high and wages will not grow significantly. The ‘inflation is transitory’ thesis makes perfect sense to the Fed because they caused the transitory part (commodities).”