Wholesale inflation benign

The rate of inflation at the wholesale level, which is measured by the Producer Price Index, fell 0.1% in April due to falling energy and food prices.

Take out food and energy, and the core rate was up 0.2%.

Year-over-year, headline inflation at the wholesale level is up 5.4%, as energy prices remain much higher versus one year ago.  But outside energy, and a few select commodities, there is very little inflation in the pipeline as evidenced by a core rate that is up just 1.0% from one year ago.

Blame the high rate of unemployment, very mild wage gains and the excess slack in the U.S. and around the world that makes it difficult to boost prices.  And with the dollar gaining strength, import price inflation should remain in check.

Because the Fed does not have to deal with inflation right now, expect policymakers to keep rates low, especially because officials don't want to create any additional waves in Europe right now.