US CPI Falls at Fastest Rate since 2008, but could it Still be Overstating the Rate of Inflation?

According to data released yesterday by the Bureau of Labor Statistics, the U.S. Consumer Price Index fell in April at an annual rate of -4.35 percent. It was the second consecutive monthly decrease and the fastest rate of decrease since late 2008, when the economy was in free fall.

The April decrease was largely attributable to lower gasoline prices, as have been almost all of the gyrations in the index since the start of the year. The core CPI, which removes its food and energy components, shows much less month-to-month volatility. It rose at an annual rate of 0.6 percent in April, its slowest rate of increase since 2010. The following chart shows that both all-items and core inflation have trended gradually downward over the past two years.



Many people are skeptical of the CPI data published by the BLS. For various reasons, they believe that the true cost of living is rising much faster than the CPI. Given that perceived inflation is generally higher than the CPI indicates, it will come as a surprise to learn that some professional economists think the CPI overstates the rate of inflation, and does so by an increasingly wide margin. >>>Read more

Follow this link to view or download a classroom-ready slideshow with charts of the latest inflation data.

Eurozone woes: France in Recession, Germany on the Skids, but Estonia and Malta are Doing Well

The latest data from Eurostat shows that fewer than half of the eurozone’s economies are now growing. Real GDP in the EZ as a whole was 0.4 percent lower in the first quarter of 2013 than a year earlier. The worst news came from the bloc’s biggest economies: Germany’s growth fell from 0.7 percent Y-o-Y in 2012 to 0.4 percent in Q1 2013. France slipped into negative territory with growth of -0.1 percent.

Prefer to look on the bright side? Tiny Estonia grew by a solid 3 percent, almost enough to offset the headlong dive of Cyprus, which clocked in at -8.7 percent.

Rather let the numbers speak for themselves? Here they are:

 This item was originally posted to Economonitor.com

Why Arguments against Exporting Natural Gas don't Add Up

The energy policy topic of the week is whether to export more of America’s newly abundant natural gas. Like any good card-carrying economist, my instincts favor free trade. Other things being equal, that makes me pro-export. Still, shouldn’t we listen to what the other side has to say? Maybe gas is different. Maybe exporting it is not such a good idea after all. So just how strong is the case against permitting more natural gas exports?

Would low gas prices strengthen the U.S. economy?

Large users of natural gas are among the most vocal opponents of increased exports. Not surprisingly, they argue that today’s gas prices, still only a little above their historic lows, are a boon for the U.S. economy. Speaking recently to Politico, Andrew Liveris, CEO of Dow Chemical, put it this way:

[w]hen natural gas is not solely used as an export, and is used as a building block for manufactured goods, it creates eight times more value across the entire economy. In this way, American’s natural gas bounty is more than a simple commodity. It’s a once-in-a-generation opportunity to export advanced products and not just BTUs.

Unfortunately, pointing out that we could use any exported primary good to make advanced products at home instead does not, by itself, tell us much about whether it should be exported.>>>Read more

US Unemployment Rate Falls to 7.5 Percent, Strong Upward Revisions for Job Growth

The report on the U.S. employment situation for April released today by the Bureau of Labor Statistics contained some good news, with the unemployment rate falling to 7.5 percent, its lowest since late 2008. Payroll jobs rose by a better than expected 165,000, and upward revisions to previous months made job market performance for the late winter look much better than previously reported. Certainly, weak spots remain in the employment situation, but on the whole, the report was stronger than expected.

Although the decrease in the unemployment rate was less than a full percentage point, it was a “good” decrease in that the absolute numbers of unemployed workers fell while both the number of employed workers and the size of the labor force increased. That contrasts with the less favorable situation in March, when the unemployment rate fell only because the labor force decreased faster than the number of workers with jobs. The number of employed workers, as measured by the household survey, increased by 293,000 from March to April. That number differs from the job gain of 165,000 reported in the separate payroll survey partly because of differences in methodology and partly because the payroll survey excludes farm workers and the self-employed. >>>Read more

Follow this link to view or download a classroom-ready slideshow with charts and analysis of the April employment situation

Is the Chained CPI the Right Fix for Social Security?

One of the most controversial elements of President Obama’s 2014 budget is the proposal to reduce future cost-of-living adjustments to Social Security benefits by changing the inflation index. The Social Security Administration now bases inflation adjustments to on the consumer price index for urban wage earners and clerical workers (CPI-W), a close cousin of the more widely publicized CPI for all urban consumers (CPI-U). The administration proposal would instead use a relatively new index called the chained CPI, or C-CPI-U, which, in the past, has increased slightly less rapidly. Predictably, deficit hawks love the idea, while seniors and those who defend their interests hate it. Suppose, though, that we set ideology and interest group politics aside to look at the underlying economics of the issue. On those terms, is the switch to the chained CPI the right fix for Social Security? >>>Read more

US GDP Growth Accelerates from a Crawl to a Walk in Q1

US GDP growth accelerated from a crawl to a walk in the first quarter of 2013, according to the advance estimate issued today by the Bureau of Economic Analysis. The reported annual growth rate of 2.5 percent was just a bit faster than the average rate during the recovery, and much stronger than the 0.4 percent reported for Q4 2012. Compared with yesterday’s news that the British economy had barely escaped a triple-dip recession and that unemployment hit a record high in Spain, the latest numbers position the United States as one of the healthiest of the advanced economies. Behind the headline growth rate, however, some of the details were less encouraging.



Personal consumption expenditure was the most important component of the acceleration. Consumption contributed 2.24 percentage points to the Q1 growth rate, compared to just 1.28 percentage points in Q4. Nearly all of that came from the service sector. Housing services and utilities, recreation, and financial services all showed strong gains. Growth in consumption of goods slowed slightly. >>>Read more

Follow this link to view or download a classroom-ready slideshow with charts and commentary on the latest GDP data

US CPI Lower in March on Falling Gasoline Prices

The US Consumer Price Index fell in March at an annual rate of -2.14 percent. The decrease reversed a sharp upward spike in February, when the annualized inflation rate rose to over 8 percent. Almost all of the volatility in recent months has been due to ups and downs in energy prices, especially gasoline. Energy prices have a weight of over 9 percent in the CPI. Energy prices rose by 5.4 percent in February, and decreased by 2.6 percent in March.

Energy prices are strongly influenced by events in the global economy. For that reason, policymakers at the Fed and elsewhere pay more attention to measures of underlying inflation. One such measure is the core CPI, published by the Bureau of Labor Statistics. The core CPI, which strips out food and energy prices, rose at an annual rate of 1.33 percent in March.

Another measure of underlying inflation is the 16-percent trimmed mean CPI published by the Cleveland Fed. That index drops the 8 percent of prices that increase most in a given month, along with the 8 percent that increase least or decrease most. The 16-percent trimmed mean index rose at an annual rate of just 0.72 percent in March. The following chart shows all three measures.

The Fed considers that inflation of 2 percent is consistent with its mandate to maintain price stability. In March, both measures of underlying inflation were well below the 2 percent target. Furthermore, estimates of expected inflation also remain well below 2 percent over both 5- and 10-year time horizons. In view of those data, most observers consider it unlikely that the Fed will tighten monetary policy any time soon.

Follow this link to view or download a classroom-ready slideshow with charts of the most recent inflation data.