Justin Lahart says inflation's direction is a result of both the strength of the U.S. Dollar and job market. Lahart predicts that the strength of the dollar will for the next few months be the more important factor in determining inflation. Lahart continues his article below; The Labor Department on Tuesday reported that consumer prices rose 0.2% in February from January, putting them even with their year-earlier levels. Core prices, which exclude food and energy, also rose 0.2%, for a year-over-year gain of 1.7%. The report implies that the Federal Reserve’s preferred measure of core inflation from the Commerce Department was up 1.4% on the year last month, calculates Morgan Stanley, still well below the Fed’s 2% target.

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What’s more, annual core inflation figures will likely ease in the months ahead. One reason is that there was a run of fairly strong readings last spring, so the marking of their anniversaries will limit comparative price gains.

But the more important factor will be the dollar.

The currency’s strength, despite losing a little ground over the past week, is already taking a bite out of inflation. Prices for core goods, which include items easily traded across borders, such as car tires, were 0.5% below their year-earlier level last month. Given that there is a lag between moves in the dollar and when these show up in prices, core goods prices will likely show further weakness in the months ahead.

Prices for core services, which aren’t so easy to trade (think haircuts) were up 2.5% versus a year earlier. That is in keeping with the trend of the past three years, indicating that despite increased spending power provided by an improving job market, consumers still aren’t willing to pay up.

The Fed last week signaled that it isn’t likely to start raising rates until September. The way things are going, even that expectation may need trimming back.

Write to Justin Lahart at [email protected]

Employers have together added 214,000 workers to U.S. payrolls in October. This marks the ninth consecutive month the number of people with jobs in the U.S. has been increasing. Correspondingly, the jobless rate has dropped to the lowest level in six years as the American economy is powering through the global economic slowdown. The previous month's growth is now known to be 256,000 new jobs -- more than was initially estimated -- according to the latest figures from the Bureau of Labor Statistics. Including the latest numbers, the jobless rate has fallen to 5.8 percent, even as more people are entering the labor force. This is boosting the share of the population working to the highest in five years.

“Despite all the talk about the global economy, the U.S. domestic economy seems to be doing fairly well,” says John Silvia, chief economist at Wells Fargo Securities LLC

The underemployment rate -- which includes part-time workers who would prefer a full-time position and people who want to work but have given up looking -- declined 30 basis points to 11.5 percent, the lowest since September 2008.

However, other economists warn against becoming overly optimistic just yet because the “labor force participation rate” — a measure of how many Americans are working as a percentage of the overall labor force — is still a very low 62.8%, nearly the lowest level since the recession of 1978.

As the forces of Schumpeterian creative destruction (innovation & entrepreneurship) are continuing to drive economic growth, these processes are also destroying the value of established companies and even laborers that had previously enjoyed some level of monopoly power. It remains to be seen what will happen to labor’s share of national income relative to capital’s share — an issue at the heart of the growing debate around rising inequality.

The U.S. Department of Labor is continuing to promote the growth of good jobs by sharing best practices from subject matter experts. Recently, they hosted Dr. Zeynep Ton (pictured above), who teaches operations management at the MIT Sloan School of Management and authored the book, The Good Jobs Strategy: How the Smartest Companies Invest in Employees to Lower Costs and Boost Profits. After studying retail operations for more than a decade, Professor Ton has been finding that some of the most successful businesses are choosing to make significant investments in their employees — and making a lot of money doing it.

During her recent research presentation, Dr. Ton said, “Offering good jobs is a choice that’s available to all retailers – small, large, regional, national, public private if you want to move our economy more towards a good jobs economy that works for all, we have to think about not just the wages and benefits, but look at the work itself, because as I examine different companies – from Costco to QuikTrip — what I found was they weren’t just paying their people more, they were designing the work differently. They were designing the work so their employees are more productive, so they are more engaged, so they contribute more, so their job is more meaningful — there is more dignity in their job. Good jobs — in my research and the research of others — good jobs equal good work.”