Despite the fact that economic data earlier in the week showed some pricing pressures in energy and raw materials, today’s CPI numbers tell us that the inflation rate was relatively flat in January. Moderate increases in food and energy prices were offset by weakness in apartment rentals and lodging away from home. The CPI rose 0.2 percent from December’s 0.2 percent rate (revised upward from 0.1 percent) and the core CPI (less food and energy) dropped 0.1 percent.
In other news, the Fed increased the discount rate yesterday, which rattled the markets and seemed to suggest a reaction to inflationary pressures, but more likely the move was strategic rather than reactionary as Bernanke himself forewarned of raising rates earlier this year.
“Like the closure of a number of extraordinary credit programs earlier this month, these changes are intended as a further normalization of the Federal Reserve’s lending facilities,” the Fed said in a statement.
The discount rate is the interest rate that the Federal Reserve charges banks for emergency loans.