If you look even today at the futures markets, the futures markets predict energy prices will be relatively flat over the next couple of years. If you take that forecast as correct, then today's core inflation rate is actually a reasonable forecast of tomorrow's total inflation rate if energy prices do, in fact, flatten out as the markets seem to expect.

While monthly inflation data are volatile, core inflation measured over the past three to six months has reached a level that, if sustained, would be at or above the upper end of the range that many economists, including myself, would consider consistent with price stability and the promotion of maximum long-run growth.

Our focus on core is mostly a technical thing because, generally speaking, energy and food prices are more volatile and tend to respond, tend to stabilize more quickly than other parts of the inflation basket.  That hasn't been true lately, as you know.  And we really need to pay attention, I think, to the overall inflation rate as well as the core inflation rate.

Higher energy prices are a change in relative prices that will inevitably lead to changes in other relative prices--an increase in the price of gasoline relative to other goods and services, for example, affects SUV prices and sales.  Energy price increases will affect other prices, at least for the medium-term, but should have little impact on longer-run inflation expectations.

Let me spend just a moment explaining how I look at inflation. As a policymaker, I pay attention to the "core" measures of consumer price inflation as well as the overall "headline" measure of consumer price inflation, because the headline number can be somewhat misleading.

In the simplest measure of core inflation, changes in food and energy prices are eliminated from the calculation. More complicated core inflation measures eliminate prices that are growing both very quickly and very slowly. In any case, the idea is to strip away the "noise" of volatile price changes, so that we can see the underlying inflation trend more clearly.

Of course, the FOMC's mandate is to control overall inflation: the average of all prices, including food and energy, as well as all the other things you buy. But we have found that measures of core inflation tend to be better predictors of future inflation than the headline rate, giving us a better picture of the true inflation trend.