There is an often-repeated joke in economists' circles that goes: Inflation is low, if you exclude food and energy prices. And of course, no one buys food or energy . . .

The above is a critique of the U.S. Federal Reserve's use of core inflation -- which excludes food and energy prices -- as a measure of lasting price changes in the U.S. economy.

Critics charge, "inflation is the sum of all products / services consumers use, not solely a portion." In essence, they argue that the Fed is underestimating inflation, creating a distorted picture of price conditions people face daily.

Still, a new research report by Michael Kiley, a Federal Reserve economist, supports the Fed's continued use of the core inflation metric. In Estimating the common trend rate of inflation for consumer prices and consumer prices excluding food and energy prices, Kiley's research reinforces the theory that total inflation historically contains more temporary changes in prices -- i.e. changes that could disappear -- than core inflation, thus supporting the continued use of core inflation.

In other words, core inflation is used by the Fed because it has been deemed a more-accurate predictor of long-term price changes or 'inflation over time' than total inflation, sometimes also referred to as 'headline inflation.'

Economist David H. Wang said he's by-and-large in agreement with Kiley's conclusions. "Core inflation is more indicative of long-term price changes. The problem occurs when you have periods of large price changes in food and energy, such as today, which pushes total inflation way up. Then the cry occurs that the Fed is not measuring inflation accurately," Wang said.

Real consumer spending increased a scant 0.1% in February 2008, the U.S. Commerce Department announced Friday, inline with expectations. It was the third straight month of sub-par consumer demand, suggesting that a major component of U.S. economic growth is faltering, which typically leads to a recession.

Meanwhile, inflation eased in January 2008, with consumer prices increasing 0.1%. Core prices, which exclude food and energy, also increased just 0.1%. For the past 12 months, consumer prices have increased 3.4%, while the core rate has increased 2%, or below the U.S. Federal Reserve's inflation ceiling, i.e. within the Fed's 'comfort zone.'

In addition, personal income increased 0.5% in February 2008, with wages and salaries increasing 0.3%, asset income rising 0.2%, while rental income plunging 5.3%. This increase in income was above expectations of 0.3%.

Economic Analysis: One negative and one positive data point for the U.S. economy in the report. The essentially flat 0.1% increase in consumer spending for the third straight month is indicative of a slowdown in consumer demand, which suggests, at minimum, continued economic sluggishness ahead. A bright point: core inflation, running at 2.0%, remains below what the U.S. Federal Reserve considers to be excessive. If the core rate doesn't increase, that should provide additional leeway for the Fed to further lower short-term interest rates, should it choose to do so.

Consumers spent more than they earned in November 2007, returning to near-decade long characteristic that has been responsible for driving a considerable portion of U.S. economic growth, the U.S Commerce Department reported Friday. Meanwhile, nominal income rose just 0.4% in November 2007, below the 0.5% estimate, the department announced. Nominal income gained 0.2% in October 2007.

Consumer spending rose 1.1% in November 2007, above the 0.9% estimate. Spending on durable goods -- such as autos, furniture and appliances -- increased 0.6%, after a 0.1% decline in October 2007. Non-durable goods spending also rose 0.6%, and services spending gained 0.5%.

A food policy research group is predicting substantial increases in food prices, arguing that a combination of factors will lead to rising food prices "for the foreseeable future."

The International Food Policy Research Institute said a major secular trend -- falling food prices prompted by high-yield grains and technological advancement, among other factors -- is set to end.

IFPRI Director Joachim Braun said climate risk and climate change, rising demand for food in emerging markets, and trade barriers will contribute to higher food prices in the decades ahead. For example, global warming is expected to decrease global agricultural production by 16% by 2020, while China and India and other rapidly-developing markets increase demand for meat and dairy products, increasing the price of those goods, as well as grain.