The US Consumer Price Index (CPI) rose back above 2% in September 2017 for the first time since April. Boosted yet again by energy prices, consumer prices overall still aren’t where the Fed needs them to be (by its own policies, not consumer reality). In fact, despite a 10.2% gain in the energy price index last month, the overall CPI just barely crossed the 2% mark (though for the Fed it really needs to be closer to 3% to match a 2% PCE Deflator).

The energy index rose about the same in September as it did in January and March. The headline inflation rate was higher in those months, however, because the rest of the price components have since suggested the opposite of what orthodox theory mandates.

The core rate, the version excluding energy and food prices, rose by 1.7% in September for the fifth consecutive month. If there was some latent price momentum underlying as all the usual mainstream talk of “transitory” factors demands, the core price level would not just be above 2% it would be rising steadily past it.

In 2005 and 2006, for example, core inflation accelerated consistently up to around 3% as the headline CPI shifted from below 2% (as a result of the sluggish recovery form the dot-com recession) to nearly 5% at the height of the housing bubble. The core rate over the last six years, by contrast, has been remarkably steady in a relatively narrow range at a lower level consistent with the lackluster to awful economy produced in those six years.

This view is corroborated by other similar CPI details. The index for consumer price changes in services (minus shelter) has been even more stubborn in this position than the core version. It has yet to break out above 3% for any single month the entire time since the Great “Recession.” In more recent months, since January, it has instead decelerated alongside a great many other economic accounts and indications recognizing the complete disappointment of conditions in 2017 (not at all what “reflation” was thinking late last year).

Despite the headlines for either the PCE Deflator or the CPI, indications for inflation expectations remained subdued all year. That isn’t surprising given the behavior of them – it took years of failure in monetary policy for investors (TIPS) and consumers (surveys) to “unanchor” their inflation outlook(s). Therefore, a few months here and there on waves of oil and gasoline prices is not going to be a sufficient counterargument to well-established (and so far proven) doubt.

Neither the 1-year projection nor the 5-year projection of the University of Michigan’s Surveys of Consumers have budged in 2017. They have, especially in October, kept to the lower end of the recent range dating back to the appearance and effects of the “rising dollar.” What is indicated as “transitory” is not continued economic weakness as Janet Yellen says year after year, but these aberrations sporadically and meekly suggesting (only) to policymakers its end.

The knee-jerk market reaction (JPY above) was, 2% and all, that disappointment. If Yellen is right, then the CPI report despite its headline favorability really should have produced more that conformed to the narrative. It didn’t; in fact, it showed up with less. It’s why more and more economists and policymakers have become impatient, showing their restlessness over inflation in public.

Former Fed Governor Daniel Tarullo, one of the few on the FOMC who would occasionally acknowledge the reality of the last ten years, wrote recently:

In fact, by the time I left the Fed after more than eight years, I had come to believe that my lack of prior involvement in monetary policy had proven in one respect to be something of an advantage for my participation in FOMC deliberations. Coming fresh to a place where much of the discourse was accepted or assumed by the very smart economists on the FOMC and the Fed staff helped me to see where some of that received wisdom was not holding-up well in the circumstances we were facing. That perspective also led me to see how some well-worn tools or concepts in monetary policy that rely on unobservable variables had perhaps been less useful even before the onset of the financial crisis. The most important of these – which I will discuss at some length later – is the concept of inflation expectations, which has played a central role in mainstream monetary policy thinking and practice. [emphasis in original]

The mainstream, policy problem is much larger than inflation expectations. It is, in fact, an entire monetary problem in that monetary policy doesn’t contain any money in it. It hasn’t for a very, very long time. The difference in expectations is that even the most unaware of people, those who have not ever heard the word eurodollar ever uttered just once, have finally begun to suspect as much; that the central bank may be central only in the media perception, and not really much of a bank.