US Inflation Hits a Four-Year Low on Fall in Gasoline Prices

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The year-on-year change in the US CPI hit a four year low of just 0.95 percent in October, 2013. For the month of October alone, the CPI fell at a seasonally adjusted annual rate of -0.71 percent. …

The year-on-year change in the US CPI hit a four year low of just 0.95 percent in October, 2013. For the month of October alone, the CPI fell at a seasonally adjusted annual rate of -0.71 percent. Much of the decrease was due to a sharp decrease in the price of gasoline

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  • 1. Data for your Classroom from Ed Dolan’s Econ Blog US Inflation hits Four-Year Low on Fall in Gasoline Prices Nov. 21, 2013 Terms of Use: These slides are provided under Creative Commons License Attribution—Share Alike 3.0 . You are free to use these slides as a resource for your economics classes together with whatever textbook you are using. If you like the slides, you may also want to take a look at my textbook, Introduction to Economics, from BVT Publishing.
  • 2. Year-on-Year Inflation Falls to Four-Year Low  The US consumer price index for October 2013 was just 0.95 percent higher than in October 2012  That marks the smallest year-onyear change in four years (slightly below the 1.05 percent reported for June 2010)  Much of the slowdown was due to a fall in the price of gasoline  The core inflation rate, which excludes food and energy, has also been trending down in recent months, but not quite so sharply Posted Nov. 21, 2013 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com
  • 3. The Role of Seasonal Adjustment  Year-on-year data is good for showing medium turn trends  To see what is happening right now, it is useful to look at monthly data, stated in annual rates of change  Unlike year-on-year data, monthly data requires seasonal adjustment  Non-adjusted data show how the cost of living actually changed in the month  Seasonally adjusted data shows how the cost of living looks if we remove the effect of changes in prices that usually occur at a given time of year (continued) Posted Nov. 21, 2013 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com
  • 4. Seasonal Adjustment in October 2013  For example, in October 2013, the price of gasoline, which accounts for about 5 percent of the CPI, fell by about 4.9 percent  That brought the annual rate of change of the unadjusted CPI down to -3.05 percent for October  Usually gasoline prices decrease by about 2 percent in October  If we remove the influence of that normal seasonal decrease, the seasonally adjusted CPI fell at an annual rate of -.71 percent in the month Posted Nov. 21, 2013 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com
  • 5. Expected Inflation  The Cleveland Fed uses the prices of Treasury Inflation-Protected Securities to estimate the rates of inflation expected by participants in financial markets  During the spring and summer of 2013, expected inflation rates began to rise  Now, during October and November, expected inflation rates have begun to fall again Posted Nov. 21, 2013 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com
  • 6. The Bottom Line  The bottom line is that inflation remains quiet, with a downward trend and low expectations for future inflation  If we take 2 percent as a reasonable target rate of inflation, the latest data give little reason to with draw fiscal or monetary stimulus at this time Posted Nov. 21, 2013 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com
  • 7. For more slideshows, follow Ed Dolan’s Econ Blog Follow @DolanEcon on Twitter Click here to learn more about Ed Dolan’s Econ texts or visit www.bvtpublishing.com