Tech Inflates on Benign Data

And, most take the latest round of data to mean Bernanke will stick to his knitting in his semiannual testimony to Congress next week. In other words, expect him to highlight strong economic growth but remain vigilant on inflation, and he'll probably talk a whole bunch about communication methods.

Indeed, the message sent by Bernanke last summer in his July testimony was that slower growth would dampen inflation. Even though growth, by various Fed speakers' own admission, didn't weaken as much as expected, inflation has softened. How did the seemingly impossible happen?

Record-high oil prices that peaked at around $78 per barrel didn't spill over into consumer prices they way high oil prices did in the 1970s, for three main reasons, says Nariman Behravesh, chief economist at Global Insight.

• First, globalization has gone a long way to support cheaper cost structures for manufacturing companies, he says.
• Second, the scope of competition has increased due to deregulation. His favorite case in point is the airline industry, which has had trouble raising ticket prices despite the high cost of its fuel.
• Third, Behravesh notes that the Fed and other central banks have done well at keeping inflation expectations under control.

Part of keeping inflation expectations down is the constant jawboning about vigilance against the threat, notes Behravesh. Philadelphia Fed President Charles Plosser is a perfect case in point. With all this benign inflation data piling up, Plosser came out strong on inflation Wednesday, even warning "there is some risk that we may not see a return to price stability unless monetary conditions are further tightened."