The document summarizes US inflation data for December 2012. It reports that the headline CPI showed little change, core inflation slowed slightly to 1.8%, and trimmed mean inflation remained moderate at 1.5%. All three major inflation indicators remained below the Fed's implicit 2% inflation target for December. The document also notes that economists look at core and trimmed mean inflation to judge underlying trends, and that longer-term year-over-year inflation rates are beginning to fall again.

1. Data for the Classroom from
Ed Dolan’s Econ Blog
http://dolanecon.blogspot.com/
US Price Data: Major
Inflation Indicators Run
Below Target in December
Posted Jan 19, 2012
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2. Headline CPI Shows Little Change in December
 The US all-items CPI showed little
change in December, as the World
Bank released a new forecast of
slowing global economic growth
 The December headline inflation rate
from the Bureau of Labor Statistics
showed zero change
 Unrounded, December inflation stated
as an annual rate was 0.12%
 For the third month in a row, falling
prices for gasoline and other forms of
energy helped keep inflation low
Posted January 19, 2012 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

3. Core Inflation Slows Slightly
 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 1.8% in December
(monthly change stated as annual
rate), down slightly from November
 Rising prices for medical goods and
services made the largest contribution
to core inflation
Posted January 19, 2012 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

4. Trimmed Mean Inflation Remains Moderate
 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 1.5% annual rate in
December, up just slightly from its
November low for the year
Posted January 19, 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 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
below the Fed’s implicit 2% target in
December
Posted January 19, 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.
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
Posted January 19, 2012 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com