The U.S. Joins the Party: CPI up 3.2%

The consumer price index rose 3.2% from April of 2010 to April of 2011 according to the Labor Department. CNN reports this as the largest 12 month increase since October of 2008. The government has attributed the majority of the increase to rising energy prices. AAA reports the average price consumers are paying for regular gasoline to be $3.98 a gallon. That's more than a dollar per gallon higher than AAA's average price of $2.89 a year ago. The Labor Department's data shows that food prices are up as well—0.4 percent this month. The U.S. has seen relatively little inflation since the financial collapse of 2008. In total, the CPI is up approximately 6% since September 2008. This is in stark contrast to many other countries around the globe which have seen much higher rates of inflation. The BBC reports that China's annual inflation rate stands at 5.3%. This is seen as a positive—the effect of China's central bank tightening monetary policy. China had been experiencing even greater rates of inflation in the past few months. Food prices had been up as much as 11.7% year over year. But the Chinese are not the only ones suffering from rising food prices. CNBC's Bob Pisani argued back in January that the revolution in Egypt was caused in large part by inflation—specifically the rising price of food. In the U.S., the Federal Reserve has been expanding the monetary base through its low interest rates and quantitative easing policies. The Wall Street Journal's Ronald McKinnon alleged that, though this increase in monetary base has done little to increase prices in the U.S., the Fed's policies are to blame for the inflation experienced elsewhere. With the CPI rising this month, could the Fed's policies be coming home to roost? Or is inflation, as Chairman Ben Bernanke described, “transitory”? Traders expecting the trend of high inflation numbers to continue might wish to consider a play on gold. The SPDR Gold Trust GLD may do well if inflation becomes a problem. Inversely, those traders who believe Bernanke is correct in his assessment may wish to play a long dollar ETF, such as PowerShares DB US Dollar Bullish Index UUP. It will be interesting if the U.S. does experience inflation rates seen in other parts of the globe. Will the Fed be able to prevent such a scenario from playing out?