Hit the brakes, Ben

Later this week, Federal Reserve Chairman Ben Bernanke will present his semi-annual report on monetary policy to the Congress. In it he will probably go to great lengths to reassure policymakers that the Fed intends to keep flooding the economy with liquidity for a while longer. But instead of keeping the pedal to the metal, Bernanke should be talking about hitting the brakes. Even though unemployment is high and business has lots of spare capacity, inflation has returned — although you wouldn’t know it from a glance at the behavior of the consumer price index. However, if you examine the CPI more closely, you will see a different picture altogether. Among other things, this means looking at the top-line number, which includes food and energy.