U.S. Inflation Indicators Come in Below Target as the Global Economy Begins to Slow
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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.
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U.S. Inflation Indicators Come in Below Target as the Global Economy Begins to Slow
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