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Well what do we have here....(pdf)

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.5 percent in February on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 2.1 percent before seasonal adjustment.

Wait a second... I thought that 1-2% was what The Fed targeted? Oh, and this is over the last 12 months, since this is a trailing indicator. PPI, of course, is a leading indicator, and it was hotter than a pistol yesterday.

Let's have a look inside.....

(Click charts to expand)

Yuck. The areas highlighted are selected for their impact on lower and middle income Americans, and they're ugly. These annualized rates are over ten percent for food and seriously ugly when one looks at energy, which we all need to buy. In addition the so-called "zero" inflation for Americans is coming with a roughly 5% escalation in actual medical costs, and since many of those costs are "absorbed" and shifted due to our so-called "insurance" system the true rate of price change is likely even higher.

I wish I could give you good news from our so-called "robust" services side. I can't. Non-durables less food and apparel (you can choose not to buy clothes for a while) have an annualized rate of price change exceeding twenty-five percent, and this is not a one-month aberration - it now extends over three months and thus must be considered valid. This is the start of the push-through that I have talked about since August's PPI release, and is going to get worse, showing up both on the shelf and also in margins.

This is a bad release folks, and the trend is going the wrong way. Sadly, the usual transmission delay into margins and prices, around nine months, appears to be pretty-much spot-on, and the impacts are showing up exactly where I would expect them to, given the food and energy situation.

The only glimmer of good news, if you need to grasp for some, is that since the largest component of this is rising energy costs should we get some sort of relaxation there the impact would likely become muted as well. The bad news is that if it happens it likely comes from a global "double dip" with added pressure coming from what is certain to be some sort of disruption in normal capital flows as a consequence of the events in Japan.

Source: CPI: Some Like It Hot