Comment of the Day: Charles Steindel: Why the Fed Should Rethink Its 2%/Year No-Lookback Inflation Target: "I've long thought that whatever the target is, they are looking at the wrong index...

...The PCE is a (crude) measure of the cost of living. It includes many imputed, not directly observed market, prices, has a heavy import weight, and excludes a large share of the prices actually charged by businesses (those for capital goods, products purchased by governments, and exports).

In terms of an inflation measure that might actually bear on production and employment decisions, the modern finished items PPI, which is an index of prices charged by U.S. businesses (including, by the way, service industries, for those who think the PPI still only measures goods prices) would seem superior. Unfortunately, this is a fairly new measure, so we don't have a good idea of its cyclical behavior (even when its not targeted), or its biases, and we'd surely want to do some trimming to look at short-term moves.

From the end of 2010 to the end of 2016 growth in the overall index was about 1.3% a year; ex-food and energy about 1.6% (we might want to also trim the retail markup component--"trade services"--but the measure eliminating that along with food and energy goes back less than four years). Looks like a bit of a pickup this year. But with no real cyclical history, it's hard to reach a judgment on these moves.