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Friday’s inflation data put the last bit of icing on the quantitative-easing cake.

Released on October 15, the CPI, the consumer price index, showed inflation slowing to just 0.1% in September after prices rose by 0.3% in August. 

The core CPI, which subtracts volatile energy and food prices, was unchanged for the month. The September number brought year-to-year core inflation down to just 0.8%. That’s the lowest annual rate of core inflation since 1961. The Fed’s target rate of core inflation is 2% to 2.5%.

That cements the case argued by chairman Ben Bernanke and a majority of the Federal Reserve’s governors that not only should short-term interest rates stay at 0% to 0.25% for an extended period, but also that the Fed should resume buying billions of Treasury notes in order to drive down long-term interest rates, stimulate the U.S. economy, and head off the possibility of deflation.

The size of the drop in inflation came as a surprise to economists who, according to, were expecting a 0.2% increase in the CPI and a 0.1% increase in the core rate for September. That forecast was seemed eminently sensible after prices at the producer level (the Producer Price Index or PPI) rose by 0.4% in September. Food prices in that index climbed by 1.2%.

But the increase in wholesale prices didn’t feed through to consumers as it usually does. At the consumer level that 1.2% increase in wholesale food costs, for example, turned into a much smaller 0.3% increase.

That’s a sign of exactly how slow the U.S. economy is. Companies aren’t passing through the full extent of rising costs to their customers because they’re afraid higher prices will keep them from buying at all. That lack of pricing power in the economy would be one more piece of evidence in favor of quantitative easing—if the Fed needed more evidence in favor of that decision.

But I think that cake is cooked.