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US Inflation Data: CPI Revisions Cut Volatility, January Inflation Up a Bit
1. Data for the Classroom from
Ed Dolan’s Econ Blog
http://dolanecon.blogspot.com/
US Price Data: CPI
Revisions Cut Volatility,
January Inflation Up a Bit
Posted February 18, 2012
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2. CPI Inflation Speeds Up a Bit in January
The US all-items CPI showed a
moderate increase in inflation in
January, reflecting stronger growth
of the economy
The January headline inflation rate
from the Bureau of Labor Statistics,
stated as an annual rate, was 2.43%
Prices increased across the board,
including food, energy, shelter,
apparel, and recreation
Posted February 18, 2012 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com
3. Revisions Remove Volatility from 2011 Data
The BLS report included revisions to
previously reported 2011 data based
on updated seasonal adjustment
factors
The revisions did not affect the year-
on-year inflation rate for 2011, but they
removed a large part of the volatility
from the monthly data
Posted February 18, 2012 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com
4. Core Inflation Also Rises in January
Food and energy prices are highly
volatile and usually 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.
In January 2012, however, the food
and energy inflation rates were the
same as the all-items rate, so the core
and headline CPI did not differ
Posted February 18, 2012 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com
5. Trimmed Mean Inflation Also Rises
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 was a
moderate at just under 3% for
January, stated as an annual rate
Posted February 18, 2012 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com
6. Which Measure is Best?
The CPI for all items gives the most
accurate picture of current changes
in the cost of living
Economists at the Fed look closely
at the core and trimmed mean CPIs
to judge the effect of monetary policy
on underlying inflationary trends
The Fed considers inflation of about
2 percent to be consistent with
prudent monetary policy
All three measures of inflation were
moved slightly above the Fed’s 2%
target in January
Posted February 18, 2012 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com
7. 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, then rose againfor most
of 2011.
The three measures shown here
have been converging in recent
months as inflation becomes less
volatile
Posted February 18, 2012 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com