US Headline CPI Falls for Second Month in a Row in November

Data for the Classroom from Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/ US Inflation Data: Headline CPI Falls for Second Month in a Row in November Posted December 16, 2011 Terms of Use: These slides are made available 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 Publishers.

Headline CPI Falls again in November
The US all-items CPI fell in November for the second consecutive month
The November decrease was very small, just 0.23 percent at an annual rate, but nevertheless a decrease
Falling prices for gasoline and other forms of energy were the biggest factor pulling the index downward.
Posted December 16, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

Core Inflation Little Changed
Food and energy prices are highly volatile and account for much of the month-to-month variation 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, which was 2.1% in November (monthly change stated as annual rate), up just slightly from October
Rising prices for medical care, shelter, food, and apparel contributed to the increase in core inflation

Trimmed Mean Inflation Slows
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, whatever they are
Trimmed mean inflation slowed to a 0.99% annual rate in November, the lowest in over a year
the Fed considers inflation of about 2 percent to be consistent with prudent monetary policy

Which Measure is Best?
The CPI for all items gives the most accurate picture of current changes in the cost of living for urban consumers
The core CPI and trimmed mean CPI give more accurate pictures of underlying trends
Economists at the Fed look closely at the core and trimmed mean CPIs to judge the effect of monetary policy
In contrast, the all-items CPI includes food and energy prices that are set on world markets, beyond direct control of monetary policy

The Longer Term Trend
To see longer term trends in inflation, it is useful to look at year-on-year changes, which compare each month’s price level with that of the same month in the year before
All y-o-y measures of inflation rates slowed during the global recession. They rose for most of 2011, but are now beginning to fall again as the base for y-o-y comparisons moves away from the extremely low monthly rates of 2010

US Headline CPI Falls for Second Month in a Row in November

by Ed Dolan on Dec 17, 2011

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US Headline CPI Falls for Second Month in a Row in November — Presentation Transcript