Current inflation is a Fed choice, but businesses and consumers are becoming less tolerant

"Because the monetary authority in most economies can prevent - or choose not to create - inflation, any theory of inflation either implicitly or explicitly involves a theory of - monetary authority behavior."  - Steve Green, Baylor University "Theories of Inflation - A Review Essay"

While this comment is from the 1980's, it still places any inflation discussion in perspective. Many have stated that the monetary authority lost its power to effectively target inflation during the period of sub-2% inflation and low nominal rates, yet now we are supposed to believe that inflation can be easily controlled. The current inflation spike is a choice by the Fed.

With the latest CPI release, it is important to focus on the core issue. Policy-makers ultimately control inflation. They may not do it well. They may have competing objectives. There may be a lag between action and response, but they are the driver of inflation and inflationary expectations. If there is wealth destruction and declines in real wages from inflation, it is because they accept this inflation. 

The investor question is the level of Fed tolerance for inflation, and this tolerance will fall as confidence and pain from businesses and consumers increase. The current CPI acceleration pulls Fed action forward which will impact yield curve shapes and rate trades.