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CPI Rises 0.5%, Inflation Debate Rages On

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Uncle Sam delivered us the latest numbahs on inflation this morning.

The Labor Department reported that the U.S. Consumer Price Index (CPI) rose 0.5% in December versus expectations of .4%, which was the biggest jump since June 2009.

The culprit? Energy led the headline gain with a 4.6% pop.

The core rate, which strips out volatile food and energy prices, was inline, up .1%. It’s up .8% year-over-year, which was also inline with consensus forecasts.

In the core CPI, inflation remained low or negative for many categories, notes the team at Nomura Global Economics, such as apparel, new vehicles, used vehicles, education and recreation, while rent inflation looks to be accelerating.

Brian Bethune, chief U.S. Financial Economist at IHS Global Insight, emphasized that the December report on core consumer prices yet again points in the same direction – in competitive domestic markets for goods and services there are absolutely no signs of any inflation pressure.

The takeaway: Fed Head Ben Bernanke and his allies on the FOMC will conclude that they have plenty of leeway to maintain a policy of rock-bottom interest rates.

“The bottom-line is that core inflation continues to track below 1%, and well below the Fed's target range of 1.5% to 2.0%,” Bethune says. “The FOMC has a green light to continue with its extremely accommodative stance on monetary policy."

As we write here in the late morning, the stock market is modestly higher with the SPY, which includes holdings like Exxon, Apple, and IBM, up 0.3%
POSITION:  No positions in stocks mentioned.