The headline number in the latest inflation report from the Bureau of Labor Statistics,
the Consumer Price Index for all urban consumers, seasonally adjusted, showed
zero change for April 2012. Unrounded data for the month, restated at an annual
rate, showed inflation of 0.36 percent, down from 3.54 percent in March.
Without seasonal adjustment, the inflation rate for April
was 3.7 percent. Motor fuel prices contributed to the difference between the
rates with and without seasonal adjustment. Motor fuel prices usually rise in
April, but this year, they rose much less than usual. The unadjusted increase
was 1.8 percent, but the seasonally adjusted change was -2.6 percent.
Food and energy prices are volatile and usually account for
much of the month-to-month change in the CPI. We can remove their effect by
taking food and energy out of the CPI. Economists call the result the core
inflation rate. The monthly change in core inflation, stated at an
annual rate, was 2.92 percent in April, about the same as in March.
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. The 16 percent trimmed mean CPI increased at an annual rate of 1.94
percent in April, down about half a point from the March rate.
Economists use adjusted measures of inflation, such as the
seasonally adjusted, core, and 16 percent trimmed mean indexes, because they
are looking for underlying trends that are relevant to the formulation of
economic policy. Changes caused by seasonal factors, and changes like the price
of oil, which are determined in world markets, are not highly relevant to
policy making. Consumers, on the other hand, look at price changes as they
happen in the real world, without seasonal adjustment. Far from ignoring prices
that change more than usual, they may give them exaggerated importance. For
that reason, the rate of inflation as perceived by consumers is often higher
than inflation as measured by economists. For a detailed discussion of the
difference between perceived and measured inflation, see this
earlier post.
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 year-on-year measures of inflation rates
slowed during the global recession then rose again for most of 2011. All-items
and core inflation have converged to rates of just over 2 percent in 2012. The
Fed considers inflation of about 2 percent to be consistent with its mandate to
maintain price stability.
Follow
this link to view or download a classroom-ready slideshow with charts of
all the latest inflation data.
No comments:
Post a Comment