What was a distinct break from the trend was the 0.1 percent increase in services prices, both with and without energy, in March. It was the smallest increase in core services since June 1999.
Prices of labor-intensive services tend to be "sticky," and there isn't a whole lot of slack in the labor market. If the March increase is the start of a deceleration in core services, it will be a change in the trend.
One would have thought the unexpectedly good inflation news would be perceived as giving the Fed some breathing room. Yet the implied yield on the fed funds futures and eurodollar futures rose on the day.
Clearly the strength in industrial production, along with a broad stock market rally, unnerved the Treasury market, which is always looking for someone or something to tell it what to do.
For those like myself who think the Fed will be forced to tighten more, not less, and who don't expect core inflation to decelerate, Tuesday's CPI report was sobering. (Color me impressed but doubtful.) No doubt Fed chief Alan Greenspan will seize on it when he testifies to the Joint Economic Committee of Congress and presumably forecasts clear sailing ahead.
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