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Analyst On Inflation: Too Early For "All Clear"

As we reported this morning, core inflation was unchanged in November. The market responded by shooting toward another record in the Dow. The index is just 30 points away from 12,500 after hitting a record 12,400 close yesterday. But not all economists trust the numbers. As Brian Sack of Macroeconomic Advisers said on “Morning Call” today, it’s “too early to sound the ‘all clear.’ ”

Sack pointed to the PCE – Personal Consumption Expenditures – as the Federal Reserve’s preferred measure for inflation. The PCE number needs to closer reflect CPI, he said, and it didn’t last month. Not to mention, inflation is down with energy costs – in the short term. So the number might not match the longer-term inflation trend. Sack also cautioned that the labor markets are still tight, and the Fed keeps a close eye on them as well.

Stuart Hoffman, the chief economist at PNC Financial, also spoke with Mark Haines this morning. As far as he’s concerned, core CPI peaked in September at 2.9%, and it’s edging lower. Today’s number also lends strength to the retail sales number earlier this week. “Now we know there was no inflation in that number, so it’s even stronger than it looks like,” he said. The low inflation and good consumer spending are key ingredients in what Hoffman calls a “soft-landing soufflé.”

While today’s report may mean that the Fed won’t tighten rates, it doesn’t mean an ease is in the works either. Sack predicts growth to jump back up to 3% by the second quarter of next year.