"Regarding CPI inflation of 0.2 percent for October and 1.2 percent for the past year, the big question is: What do these numbers mean, if anything, for the Federal Reserve's announced 'quantitative easing' earlier this month? Keep in mind that the CPI numbers are yesterday's inflation news. The numbers offer value to the extent that they might show a trend. And quite frankly, combined with a heating up in the producer price index (PPI) over the last four months (with PPI 'inflation' running at an annualized 4.2% rate), the slightly stepped up CPI inflation annualized rate of 2.7 percent for the past four months warrants some watching.
"Indeed, there's a heck of a lot to watch and be concerned about in terms of monetary policy and the potential for future inflation. The Fed's previous opening of the monetary floodgates - particularly from September 2008 to February 2010 - and its pledge for more quantitative easing in coming months mean that rising inflation is expanding as a significant future risk.
"The Fed's hope is that easy money can ignite the economy, but that the central bank eventually can reverse course before inflation burns down the economic house. Unfortunately, history offers no evidence that the Fed is capable of such a stupendous feat. Playing with fire is always dangerous, and that's what the Fed has been doing - playing with the fires of inflation."