US CPI Inflation Spikes in February but Expectations Remain Well Anchored
Consumer Price Inflation Jumps Sharply in February The all-items U.S. consumer price index rose at an annual rate of 8.47% in February 2013, its fastest rate in almost four years The spike followed two months of near-zero inflation Almost all of the increase came from energy prices, especially the price of gasoline. Energy prices have a weight of 9.5% in the CPI Posted Mar. 15, 2013 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com
Core Inflation Falls Slightly Food and energy prices are volatile and usually account for much of the month-to-month change in the CPI Their effect can be removed by taking food and energy out of the CPI. The result is called the core inflation rate. The annualized core inflation rate for February was 2.06%, down from January’s 3.04% Posted Mar. 15, 2013 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com
Trimmed Mean Inflation Rises Slightly Another way to remove volatility is the 16% trimmed mean CPI published by the Federal Reserve Bank of Cleveland. It removes the 8% of prices that increase most and the 8% that increase least in each month (or decrease most), whatever they are The 16 percent trimmed mean CPI increased slightly to an annual rate of 2.59 percent in February Posted Mar. 15, 2013 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com
Which Measure is Best? The CPI for all items gives the most accurate measure of current changes in the cost of living Economists at the Fed look closely at the core and trimmed mean CPIs, and at other inflation indicators derived from the GDP accounts, to judge the effect of monetary policy on underlying inflationary trends Posted Mar. 15, 2013 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com
Inflation Expectations Remain “Well Anchored” In early December, the Fed announced that it would keep interest rates low until the unemployment rate fell to 6.5 percent (it is now 7.7 percent) and as long as inflation expectations remained “well anchored,” that is, below 2 ½ percent for a two-year time horizon and below 2 percent for longer horizons. This chart, based on data from the Cleveland Fed, suggests that inflation expectations remain “well anchored.” Posted Mar. 15, 2013 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com
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