KEY DATA: CPI: 0.0%; Excluding Food and Energy: +0.2%; Real Earnings (Monthly): +0.2%; Year-over-Year: +0.9%

IN A NUTSHELL: "Inflation is tame and that is keeping household spending power from totally disappearing."

WHAT IT MEANS: Inflation, we hardly know ye. Consumer prices were flat in November, helped by another drop in energy costs. But it wasn't just gasoline. There were few places where prices were up sharply. The cost of eating at home was up minimally though eating out is becoming more expensive. Household furnishings, clothing and new vehicle prices fell while used vehicle costs rose modestly. Even Internet provider prices are going nowhere and are actually falling (I have no idea where the government got that number from). But the real eye-opener is medical expenses, which used to be the inflation beast. No more. Medical commodities costs are up only 0.8% over the year and medical services expenses, which includes hospitals, physicians and insurance, increased a moderate 2.6% since last November. Insurance has risen only 1.3% in that time frame. Hospital costs have been flat or negative three of the last four months and its rate is on a downward trajectory. I thought the ACA was causing health care costs to surge. What do I know? The only outlier remains tuition. Excluding the volatile food and energy components, prices rose a bit more but not a whole lot.

With prices largely going nowhere, household incomes, adjusted for inflation, managed to rise a touch. But since November 2012, worker spending-power is up less than one percent. And retailers are confused why all those sales are not working. Amazing how the business community has totally separated incomes from demand.

MARKETS AND FED POLICY IMPLICATIONS: The FOMC is meeting today and tomorrow and that should be the focus of attention of investors. One of the issues it has to face is inflation. It is not enough that the economy is starting to change gears. The Fed also has some inflation targets and right now, they are not being met. Over the year, consumer costs have risen by just over one percent. That is one of the reasons I don't expect anything more out of the statement than an indication that if the economy keeps improving it will be time to scale back the asset purchases. That could happen in January, allowing Mr. Bernanke to give his critics a going away present. At worst, barring some really weak jobs data for December, the latest it looks like it will start is March. Regardless, tapering is just about here and the question will soon become, "how long will it take to end quantitative easing?" That should occur by the fall, which means we have to watch how fast and how far longer-term rates rise. Outright Fed rate hikes still look to be at least a year or more away.