Inflation is above expectations, and it raises a question of what the Fed should be doing. Bloomberg News reports that the Consumer Price Index (CPI) rose 0.3% in September, compared to the 0.2% rise economists expected. And according to Reuters, the Producer Price Index (PPI) was up 1.1% -- way ahead of economists' projections of a 0.4% rise -- creating a tough problem for the Fed.

Will the Fed derive comfort from the core PPI figure, which was up 0.1%? It seems to pick numbers conveniently -- such as the 1.8% August rise in consumer inflation net of food and energy prices -- that give it comfort. Or will it view the 1.1% rise as another indicator -- along with the 4.1% rise in labor costs -- that inflation is out of control.

Why do we have a Fed anyway? Is it to bail out Wall Street through an unexpected 50 basis point rate cut? Or is it to keep inflation within a 1% to 2% range? I think the Fed is leaning towards bailing out financial markets rather than controlling inflation.

Oil prices have continued to climb today, and are currently (10:30 a.m.) trading up $0.83 to $83.71. Earlier in the session, it had looked as though profit taking would drive prices lower, but that sell off was only momentary and supply concerns along with weakness in the U.S. dollar have once again led to price gains. Update: by the end of the day, oil had reversed again to close at $81.66.

There are several factors that are leading to the recent run up in oil prices. I have looked at these a few times over the past few days, and they remain the same; upcoming winter heating months, geo-politcal unrest in the Middle East, and the looming threat of disruptions related to the hurricane season. All of these have one thing in common -- supply / demand concerns. The market will react quickly and emotionally to any one of these factors, and even more strongly should more than one start to play out at the same time.

Yesterday, I mentioned the increasing tension between Iran and the West, with Iran now claiming the nuclear issue to be a "closed case" and that it will defy any UN sanctions imposed on it. This is happening at the same time that the United States is toughening its stance against the Middle Eastern country and calling for other nations around the world to do the same in its attempt to put an end to the ruling party's "reign of terror."