Side with the inflationistas

Wall Street has a new worry, says Joe Weisenthal on Businessinsider.com: "inflation is finally happening", yet America's Federal Reserve can't see it and so could end up having to raise interest rates earlier and further than expected. That could cause severe turbulence for stocks and bonds.

Data for May showed that the annual rate of core consumer price inflation (CPI), which excludes volatile food and energy prices, posted its biggest jump in five years, hitting a 15-month high of 2%. The Fed dismissed the CPI data as "noisy", or misleading.

But it looks as though Fed chair Janet Yellen "hasn't really got a good handle on the data", says Capital Economics. Prices of goods and services, from rents and medical care to clothing and new cars, are on the rise. Core producer price inflation and the price indices of various business surveys have all risen.

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On top of that,says Deutsche Bank, April saw a huge 0.4% drop in the unemployment rate.This suggests that slack in the labour market is being used up quickly, which suggests wages could soon start rising.

Sure, the Fed reckons the unemployment rate is not a good indicator of job-market slack. Still, it's worth noting that May's jump in inflation and April's fall in unemployment were both rare occurrences, and the odds of them happening in successive months "really are long" so it's hard to dismiss them as noise.

Time will tell whether the Fed or the analysts are calling this one right. But given central banks' poor records, we're inclined to side with the inflationists.