Inflation Dries Up, Fed Governors High Five Each Other

Yesterday, I noted that the newly released minutes from the Fed's October meeting indicated a more confident inflation outlook.  Continued pausing, or perhaps loosening, of interest rate policy would depend on them being right.

Today's CPI report suggests they're right.

On a seasonally adjusted basis, the CPI-U declined 0.5 percent in October, the same as in September.  Energy prices, which declined 7.2 percent in September, fell 7.0 percent in October.  Within energy, the index for petroleum-based energy decreased 10.7 percent and the index for energy services declined 2.5 percent.  The food index increased 0.3 percent in October.

Plummeting energy prices certainly helped, but even the core number was nearly flat.

The index for all items less food and energy rose 0.1 percent in October, following increases of 0.2 percent in each of the three preceding months.

The timing of the most recent inflection point in Fed policy may prove to have been impeccable, if it manages to give us the perfect landing from 2005's hyper growth, taming inflation without sending the economy into recession.

It may be too early to clap Bernanke definitively on the back yet (I continue to think they hiked at least once more than necessary), but today's report offers the FOMC at least some preliminary some bragging rights.

The market obliges by pushing higher still.