The core Consumer Price Index (CPI), which excludes food and energy, increased 0.3% in May from the previous month and moved up 1.5% on a year-over-year basis and which leaves the Fed less comfortable than it has been in the past few months.

The good news is that inflation is a lagging indicator and projections for the second-half of the year show moderate pace of growth and inflation. Market expectations of inflation also indicate a downward revision of the April assessment of medium term inflation, with inflation expectations at 1.95% as of June 16, down from 2.45% as of April 29 (see Chart 3).

Asha Bangalore — Senior Vice President and Economist

http://www.northerntrust.com

Asha Bangalore is Vice President and Economist at The Northern Trust Company, Chicago. Prior to joining the bank in 1994, she was Consultant to savings and loan institutions and commercial banks at Financial & Economic Strategies Corporation, Chicago.

The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.

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