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This morning, the Labor Department reported that consumer prices rose a modest 0.1 percent in February, after climbing 0.7 percent in January.
The tame consumer price index report was partly attributable to the 1.2 percent drop in energy costs last month. But even core CPI, which excludes volatile food and energy prices, rose a tame 0.1 percent.
And over the past 12 months, core inflation is up an acceptable 2.1 percent. "The core CPI continues to be tame despite pass-through pressures from surging energy prices over the past year," said UBS economist Maury Harris.
In fact, this morning's report would seem to indicate that inflation isn't nearly as big a threat to the economy as many economists—and the bond market—seem to think.
This should give Fed Chairman Bernanke, who presides over his first monetary policy meeting on March 27, some added flexibility in setting the nation's interest rate policy.
Heading into the week, conventional wisdom was that the Fed may have to raise rates three more times to keep inflation in check. But given this morning's benign CPI report, many now believe Bernanke may need to lift rates only one or two more times.
The stock market rejoiced at the news. The Dow Jones industrial average and the Standard & Poor's 500 index of blue-chip stocks both hit five-year highs this morning. In fact, the S&P 500 climbed back above the 1300 level for the first time since May 2001.
