America's key inflation indicators are pointing up, but their staying power is weak. The pillars to aggregate demand are too frail to support a rebound of economic activity that could cause accelerating cost and price pressures in the months ahead.
To see that, below is a quick review of key variables driving monetary policy decisions.
Let's start with inflation because that is a monetary phenomenon. Consequently, price stability, usually defined as an inflation rate of 0-2 percent, is the main intermediate policy target pursued by monetary authorities.
Here is what we've got in the U.S. at the moment. Consumer prices less food and energy (aka core CPI) have been pushing above annual rates of 2 percent since November of last year. Two months ago, that measure of price inflation shot up to 2.3 percent.
Of particular importance are rising price pressures in the service sector, which accounts for about 90 percent of the U.S. economy. Service prices increased in August by 3.2 percent, with costs in the medical, housing and transportation sectors rising at annual rates of 5.1 percent, 3.4 percent and 3.1 percent, respectively.