This is the most important inflation indicator

Ethan Harris at Bank of America Merrill Lynch thinks that we're all missing the mark on the most important inflation indicator.

In a note to clients on Monday, Harris writes: "One of the striking things about the recent inflation debate is that the consensus, press, markets and the Fed pay virtually no attention to what we think is the most important indicator of inflation-consumer import prices."

Harris writes that this measure is a better indicator of inflation than the unemployment rate, which has had almost no correlation with core inflation since 2008, while consumer import prices have roughly matched the ups and downs of core inflation since the financial crisis.

Here's Harris (emphasis ours):

What does this imply for inflation in the year ahead? Consumer import price inflation is likely to continue to drop, as weak inflation overseas continues and weak commodity prices and the strong dollar work their way into consumer prices. Some of this weakness could also persist into next year since the global backdrop is unlikely to change much. Plugging in reasonable numbers for this year-an average unemployment gap of zero and a 1% drop in consumer import prices-suggests core PCE inflation will be 1.3%. Moreover, we see more downside than upside risks to this forecast.