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By Jason Stipp | 03-17-2011 10:56 AM

Expect Hotter Inflation in Months Ahead

Morningstar's Bob Johnson explains the disconnect between the Fed's characterization of inflation and consumers' experience at gas stations and grocery stores.

Jason Stipp: I'm Jason Stipp for Morningstar.

We got a lot of inflation data this week, including the Consumer Price Index. Inflation is a big piece of data on the radar of Morningstar's Bob Johnson; he is our director of economic analysis.

He is here to tell us what he saw in those reports today. Thanks for joining me, Bob.

Bob Johnson: Great to be here.

Stipp: First question for you: We got CPI data on Thursday. CPI was up. What did you see in the report at the top level?

Johnson: The Consumer Price Index went up 0.5% this month from last month, so it's a relatively big number; if this happened 12 months in a row, we would be at 6% annualized inflation.

Stipp: So I know energy is one thing that a lot of consumers have noticed has been higher recently, and we have seen energy prices fluctuating, but generally, higher than they had been. To what extent, did energy itself contribute to that increase?

Johnson: Well, energy was a pretty hefty piece of the increase. Energy itself went up 4.6% in the month, and it's only relatively 10% of the index or so. So, it's not huge, but it did have a big effect on the number.

Stipp: But energy wasn't the only thing, obviously, you mentioned to me that it was more broad-based. So, what were you seeing on the upside that was contributing to that increase that we saw?

Johnson: There was a whole range of things that were up. Some of them are indeed tied to energy, and some of them are away from energy. Some of the things were up: Electricity was up, which had kind of been an offset to some of the things that had been happening in the gasoline complex for a while. Natural gas to heat your home was up, which had been down for many months and kind of kept a lid on things. So those two things, which had been keeping a lid on, kind of blew up this quarter a little bit, so that hurt the numbers.

Public transportation was up. We've talked many months about how any service provided by government, people are looking for new sources of revenue, and we're seeing increases there. Airlines were up over a 2%, so there was another area that was hit. Medical costs, which had been a couple of years ago really accelerating, and then really paused due to the recession, now come back again with a vengeance something like 0.4% in one month. So, those are some of the categories that have been up recently.

Stipp: On the other side of the coin, did anything go down or did anything keep the increase in check?

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