INFLATION….This month’s inflation news:

Consumers began to feel the full effects of soaring fuel and food prices last month, with inflation leaping upward 0.6% in May — driven by a huge one-month rise of 8.5% in the price of petroleum-based products, the Labor Department reported today.

….Still, prices for goods other than food and fuel remained relatively stable, rising just 0.2% for the month. Investors were heartened by the so-called core inflation rate, and stocks rose on the news with the Dow Jones industrial average rising more than 130 points in early trading.

If “investors” were heartened by the moderate rise in the core inflation rate, they shouldn’t be. For technical reasons, the Fed in recent years has focused on core inflation when it sets interest rates (and its use is controversial even there). But that’s not because it’s somehow more real than the broader measure embodied in the headline CPI rate. It’s not. Basically, unless you think that food and petroleum are currently in bubble mode (and I won’t take you seriously on this unless you’re willing to put some money behind that bet), then the inflation rate last month was 0.6%. That is, an annual rate of about 7%. That’s high by anybody’s measure.

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