All major US inflation measures fell below the Fed's target of 2 percent during May.

1. Data for the Classroom from
Ed Dolan’s Econ Blog
http://dolanecon.blogspot.com/
US Inflation Data: All
Inflation Indicators Point
Sharply Lower in May
Posted June 14, 2012
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2. Headline CPI Falls in May at Fastest Rate since 2008
 The headline number in the latest BLS
inflation report, the seasonally
adjusted Consumer Price Index (CPI-
U) fell by .3 percent in May
 Using unrounded data and stating the
monthly change at an annual rate,
seasonally adjusted inflation was
-3.31 percent, the sharpest decrease
since 2008
 Without seasonal adjustment, the CPI
decreased at an annual rate of about
1.2 percent in April
Posted June 14, 2012 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

3. Core Inflation was Sharply Lower on Weak Energy Prices
 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 monthly change in core inflation,
stated at an annual rate, was 0.24
percent in May, down sharply form
April
 Seasonally adjusted energy prices fell
by more than 4 percent in May, and
gasoline by more than 6 percent
Posted June 14, 2012 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

4. Trimmed Mean Inflation Follows Core Down
 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
 The 16 percent trimmed mean CPI
increased at an annual rate of 1.1
percent in May, down sharply from the
April rate
Posted June 14, 2012 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

5. 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
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 of the measures shown fell short
of the Fed’s target in May
Posted June 14, 2012 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

6. 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 again for most
of 2011.
 The three measures shown here
have moved steadily downward in
2012. All are close to or below the
Fed’s targets
Posted June 14, 2012 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com