Inflation reality, Fed policy further diverge

NEW YORK: The 0.4% August increase in US consumer prices puts the rate up 3.8% in the last year and reveals real interest rates to be heavily negative.

A 10% rise in M2 also shows just loose money.

The Consumer Price Index for all Urban Consumers (CPI-U) increased 0.4 percent in August on a seasonally adjusted basis; over the last 12 months it increased 3.8 percent.

The "core" index for all items except food and energy increased 0.2 percent in August and 2.0 percent over the last year.

Apart from energy costs, up 1.2 percent during the month and food costs, up 0.5 percent, particular strength was shown in apparel, up 1.1 percent and rent of primary residence, up 0.4 percent.

According to St. Louis Fed data, M2 money supply has risen 10.2 percent in the last year and at an annual rate of 26.7 percent in the last three months.

Copyright Reuters, 2011