Inflation is running a little hotter than economists expected – but a deeper dive into the data indicates it might not be time for the Fed hawks to rejoice just yet.

Open up any introductory economics textbook and you’ll read that when the Federal Reserve keeps short-term interest rates low, inflation and economic growth tend to heat up. Eventually, the theories show, both key economic metrics will begin to boil over and the central bank must act to avert a painful inflationary bubble.

Those time-honored models are broken.

The Fed has held short-term interest rates at essentially 0% since the financial crisis threatened to toss the world’s largest economy into a full-out depression in 2008. It has also rapidly grown its balance sheet by buying huge swaths of longer-term assets in a bid to shore up financial and housing markets by depressing longer-term interest rates.

The economy has improved at a painfully-slow pace, with many economists forecasting annual growth of around 3% this year, notwithstanding a harsh winter that shoved gross domestic product into contractionary territory in the first three months of the year. That compares to a 1.9% growth pace for 2013.

Meanwhile, inflation, as measured using the Labor Department’s Consumer Price Index, climbed at a year-over-year rate of 2.1% in May, which came in 0.1 percentage point above expectations. Exclude the volatile food and energy components and core prices were up 2% -- also 0.1 percentage point higher than forecast.

The Fed is explicitly targeting inflation around the 2% level because that rate is “most consistent over the longer run with the [central bank’s] mandate for price stability and maximum employment.” The central bank tends to prefer a different measure of inflation – called personal consumption expenditure – that ran at a milder 1.6% pace -- and 1.4% excluding food and energy -- in April (the latest reading).

Either way, Fed hawks – those policymakers that prefer hiking interest rates and trimming bond purchases sooner to reduce the risks of inflation – are beginning to fret about rising prices.

“As the headwinds weighing on the recovery thus far start to fade, policy may need to react sooner than what is suggested in the FOMC’s projections,” Kansas City Federal Reserve President Esther George, who isn’t a voting member on the Fed’s policy-setting board this year, said earlier this month.

“A gradual path for the federal funds rate is suggested by the FOMC’s projections. However, in my view, it will likely be appropriate to raise the federal funds rate somewhat sooner and at a faster pace.”

A Deeper Dive

A close examination at specifically where price increases are occurring shows the central bank might have to continue being patient on the rate front.

The primary driver for the jump in core prices was housing, according to Keefe, Bruyette & Woods analyst Michael Widner. The segment, which has a 41.6% weighting in the core reading, climbed 2.9% on a year-over-year basis.

“Putting aside all issues about how that's calculated and defined, we don't see it as something the Fed really wants to clamp down on right now,” Widner said in a research note. Indeed, the Fed has been working hard to fix a housing market that shattered in 2007 and rising rents are frequently seen as a sign of an improving economy.

At the same time, the two biggest increases on a year-to-year basis in the core component were educational supplies and medical goods. It’s not clear exactly what sparked the increase in those segments, although the sweeping Affordable Care Act could certainly be impacting drug and other medical prices.

“Attribute those to what you will, but over-stimulated economy doesn't strike us as a leading contributor, nor does it seem likely to us that the Fed's raising rates will change their course,” Widner said.

“In contrast, cars, clothes, household furnishing, and recreational goods all failed to muster a reading above 1%. In other words, more discretionary items don't seem to be experiencing the kind of flight off the shelves one might hope for in an economy running north of its potential.”

The services component showed similar trends. The vehicle insurance, postage, tuition and school fees, public utilities, public transportation, and medical care segments all registered increases above the 3% mark. “A curious set of items that once again don't portray a picture of an overheated economy running amok,” Widner noted.

All in all, Widner warns analysts not to read too deeply into the headline figures, saying: “The market seems to want to draw the very simple conclusion that inflation is moving higher, and therefore the Fed is more likely to raise rates sooner. Based on where inflation is occurring, we're not so sure, and perhaps more importantly we're not so sure low rates have anything to do with it.”

Follow Adam Samson on Twitter @adamsamson.