selfbnd411
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Joined: 7/23/2005
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You can have it with (CPI) or without (Core CPI). The reason nobody looks at food and energy inflation is partly because food and energy prices are so volatile they will skew the numbers. Interest rates would bounce around like a ping pong ball.
We use the core CPI to predict what the Federal Reserve might do with interest rates. The Fed is always trying to fight inflation, and when inflation gets too hot it raises interest rates. This takes money out of the economy and slows things down. Fewer dollars chasing the same amount of goods and inflation goes down.
For the past few years, though, prices for energy and food have been rising because the rest of the world is consuming more of these resources. The Fed is basically powerless to control the world's economy, so if the Fed raised rates to stop energy/food inflation, it would destroy the domestic economy. And prices would continue to go up because it's the rest of the world that's consuming.
The market is rallying on this news because it means that inflation is not a problem, but economic slowing is. The Fed might cut interest rates, stimulating the economy. If interest rates on a bond or a CD drop just a bit, it makes cash investments much less attractive than stocks. Money will flow in, stocks will go up.
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