Wednesday, December 15, 2010

Disinflation Remains

The WSJ details:
So-called core inflation, which excludes energy and food prices and is closely watched by the Federal Reserve, inched ahead by 0.1%, the first move after three flat months.

Economists surveyed by Dow Jones Newswires ahead of the release expected consumer prices to rise by 0.2% and core CPI to gain 0.1%.

The Fed considers core inflation a better measure of price trends because it excludes the most volatile components of the index.

The annual underlying inflation rate was 0.8%, well below the Fed's informal inflation target of between 1.7% and 2%. The Fed's policy-making committee Tuesday signaled that it thinks core inflation remains too low--a key factor in last month's decision to start buying $600 billion in Treasury bonds in an effort to boost investment and consumption.
Year over year changes show INFLATION IS NOT AN ISSUE.



Source: BLS

2 comments:

  1. What if food and energy prices are permanently higher and are consuming more of a family's income percentage wise? Are we going to continue to ignore them just because they are "volatile"?

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  2. Permanently higher price levels would not cause CPI to increase going forward. A permanent increase in growth rate of food and inflation would (remember, inflation rate is a year over year figure, not a level).

    That said, I agree with your argument. BUT, if that were to happen, there would likely be less money available for other goods / services (not a good thing), which would cause core CPI to fall.

    More here: http://econompicdata.blogspot.com/2010/12/ppi-jumps-is-core-inflation-in-our.html

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