I think the inflation rate should at least be above zero before we start worrying that it's gotten out of control. I don't think that's too much to ask.
Yes, the so-called core inflation rate -- which excludes food and energy prices -- fell by 0.1 percent in May. The news supports the argument made by Paul Krugman and others that there is no reason to worry -- at this time -- that Obama's deficit spending will spawn an inflation apocalypse in the near future.
But the alternative thesis for why interest rates on long-term bonds have been rising lately -- that it is a sign of confidence that the the economy is poised for recovery -- is also suspect. Sure, housing starts rose by a robust 17 percent in May (fueled mostly by apartment-complex groundbreaking), but that's measured against April of this year. Measured against May of last year, they fell 45 percent. Industrial production is also down.
Bottom line: Today's economic data do not give us reason to be optimistic about the economy or pessimistic about the chances for rising inflation.