Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

US Inflation Data: Scant Fuel for Inflation Fears in September CPI Report


Published on

Although some still fear inflation, there was little sign of it in the September CPI report and related core inflation measures

Published in: Economy & Finance, Technology
  • Be the first to comment

  • Be the first to like this

US Inflation Data: Scant Fuel for Inflation Fears in September CPI Report

  1. Data for the Classroom from Ed Dolan’s Econ Blog US Inflation Data: No Fuel for Inflation Fears in September Report Posted Oct 22, 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.
  2. Headline CPI Inflation Slows Again in September <ul><li>Although some observers think the Fed’s easy monetary policy risks a rise in inflation, there was scant fuel for their fears in the September inflation report </li></ul><ul><li>The US all-items CPI rose at a seasonally adjusted annual rate of 3.7% in September, 2011, down almost a point from the August rate of 4.6% </li></ul><ul><li>Gasoline and food prices, as well as medical services, contributed to inflation in August, as in the previous month. </li></ul>Posted October 22, 2011 on Ed Dolan’s Econ Blog
  3. Core Inflation Falls to Lowest Rate of the Year <ul><li>Food and energy prices are highly volatile and account for much of the month-to-month variation in the CPI </li></ul><ul><li>Their effect can be removed by taking food and energy out of the CPI </li></ul><ul><li>The result is called the core inflation rate, which fell to just 0.6% in September (monthly change stated as annual rate), the slowest for the year </li></ul><ul><li>Because food and energy prices contributed more than their share to inflation, as they have for most of the year, the core inflation rate was below the all-items rate </li></ul>Posted October 22, 2011 on Ed Dolan’s Econ Blog
  4. “ Trimmed Mean” CPI also Slows <ul><li>Another way to remove volatility from the CPI series is the 16% trimmed mean CPI published by the Federal Reserve Bank of Cleveland </li></ul><ul><li>The trimmed mean CPI removes the 8% of prices that increase most and the 8% that increase least in each month, whether they are food, energy, or something else </li></ul><ul><li>In July, the trimmed mean inflation slowed significantly, although it remained above the core inflation rate </li></ul>Posted October 22, 2011 on Ed Dolan’s Econ Blog
  5. Which Measure is Best? <ul><li>The CPI for all items gives the most accurate picture of current changes in the cost of living for urban consumers </li></ul><ul><li>The core CPI and trimmed mean CPI give more accurate pictures of underlying trends </li></ul><ul><li>Economists at the Fed look closely at the core and trimmed mean CPIs to judge the effect of monetary policy </li></ul><ul><li>In contrast, the all-items CPI includes food and energy prices that are set on world markets, beyond direct control of monetary policy </li></ul>Posted October 22, 2011 on Ed Dolan’s Econ Blog
  6. The Longer Term Trend <ul><li>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 previous year </li></ul><ul><li>All measures of inflation rates slowed during the global recession, but they are now rising again </li></ul><ul><li>The Fed considers 2% annual inflation to be consistent with prudent monetary policy in the long run </li></ul>Posted October 22, 2011 on Ed Dolan’s Econ Blog