This debate gets brought up a lot by inflation hawks but I like his reasoning about China being the driver on both fronts. Also I was struck by the idea that while the U.S. eliminates food and energy from the top line to reduce volatility in the data, U.S. overnight rates have been quite volatile.
The US Federal Reserve is wrong to focus on core measures of inflation that exclude energy prices, Charles Bean, chief economist at the Bank of England, has suggested. It should focus instead on headline inflation, which is much higher, he argued. Including energy and food costs, US consumer price inflation is running at an annual rate of 4.1 per cent, against 2.7 per cent for core inflation.
Mr Bean told the Fed's annual Jackson Hole symposium at the weekend that energy prices were rising for the same reason the price of many manufactured goods were falling: the rise of China and other emerging market economies. Since both price trends had a common cause, he said it makes little sense to focus "on measures of core inflation that strip out energy prices while not stripping out falling goods prices as well."
I guess this stuff is neither here nor there since the data including food and energy is still available and the bond market approves of the FOMC's view by keeping the inflation outlook low.