Owning a Treasury at 4% when core inflation is around 2% makes plenty of sense.
Mr. Dwyer believes trends in core inflation provide the context for continued upward movement in equities.
It has set the cost of federal funds at 4.5% over any detectable annual core inflation.
Alone, and against all evidence, the Fed reckons core inflation at something like 3.5%, not 2%.
Compared with a year earlier, the core CPI rose 2.8%, the fastest core inflation since 1996.
In fact, on a two-month basis, core inflation has actually fallen to 2.0% (see chart).
They expect core inflation to rise to 3.2 percent in 2013 from 2.7 percent.
It will also produce a much smaller impact on payrolls, claims and core inflation.
At the time, core inflation was at its highest level in more than five years, approaching 7%.
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For these reasons, Mr Woodford thinks central banks should target core inflation rather than a broader measure.
While core inflation is running higher lately, forward-looking indicators suggest a slowdown in the inflation rate.
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Core inflation (ie, stripping out food and energy) is also above 2%, and it has been rising.
On these assumptions, we forecast average core inflation of 9.4% year over year, or 9.3% in December.
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However, core inflation which excludes energy, food, alcohol and tobacco rose to 2.6%, mainly because of higher service-sector inflation.
On the other hand, core inflation, which excludes volatile energy and food prices, is still relatively modest.
Indeed, this is almost true by definition as rents are by far the largest component of core inflation.
Therefore one can understand why core inflation ran at a 54 year low of just 0.6% in October.
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Core inflation, which discounts volatile food and energy prices, stood at 2.9% annually at the end of June.
November core inflation came in at 0.60 percent on the month, above consensus and Nomura estimates (0.5 percent).
China will release core inflation figures on Wednesday, with consensus of 5.5%. down from September inflation of 6.1%.
China inflation is still a concern, with core inflation up to a little more than 5% in March.
Government data shows core inflation eased to 3.8% in February from 4.12% in January and 4.24% in December.
The Fed made its seventeenth straight hike in June, yet core inflation hit an 11-year high that month.
With rates close to 13%, core inflation should end the year at 6.5% and average 5.6% next year.
Treasury yields peaked in 1981 at a touch over 15.5%, when core inflation was a touch under 11%.
Core inflation, which excludes energy, food, alcohol and tobacco prices, has been 2.4% or thereabouts for several months.
Core inflation continued its upward creep in February, driven by big increases in medical costs and tobacco prices.
But core inflation, which excludes energy and food prices, stayed at 1.9%, the lowest recorded for three years.
Investors were also cheered by news that core inflation in Britain had retreated to a 12-month low of 1.4%.
These are a fraction of historical rates, and below even the core inflation forecasts of the bond market itself.
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