Friday's CPI Report Was a Lot of Noise, Not Much Signal

If you followed the breathless media coverage of Friday’s CPI report, you got a lot of noise—but not much signal. 

Yes, prices rose sharply in March. But that 0.87 percent headline number was driven overwhelmingly by a single factor: an energy shock tied to the Iran conflict. 

Energy prices jumped 10.9 percent on the month, with gasoline surging more than 20 percent—one of the largest one-month increases on record. Strip out that non-core spike, and the inflation story looks very different. 

Core inflation—which excludes both food and energy—rose just 0.2 percent, below expectations. On a 12-month basis, core came in at 2.6 percent. That is not an economy overheating. It is an economy absorbing a geopolitical oil price spike while underlying inflation pressures continue to cool. 

Remember what both former Fed Chairs Alan Greenspan and Ben Bernanke argued about oil price shocks: don’t overreact to them with tighter monetary policy.