US Inflation at Four-Year Low on Falling Gasoline Prices

A big drop in gasoline prices brought the US inflation rate for October, as measured by year-on-year change in the consumer price index, to just 0.95 percent, its lowest level in four years. The y-o-y inflation rate for the core CPI, which excludes food and energy, was 1.69 percent. As the following chart shows, trends for both the all-items and core CPI have turned downward over the past two years.



Year-on-year data give a good picture of medium-term trends, but it is also worth looking at monthly data, which tell us what is happening right now. The latest monthly data reveal not just a slowing of inflation, but an actual fall in the price level for October. As the next chart shows, the seasonally adjusted CPI decreased at a .71 percent annual rate in October. Without seasonal adjustment, the CPI fell even more sharply—an annual rate of decrease of 3.05 percent. >>>Read more

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

Could America’s New Energy Abundance Spark a Trans-Atlantic Environmental Race to the Bottom?

Environmentalists often pillory China, with its opaque city air, dirty water, and contaminated food as the leader of a race to the bottom. By spending as little as possible on pollution control, they say, it keeps production costs to a minimum and boosts exports. If Chinese producers had to bear the full external costs their pollution imposes on others, the critics go on, a good part of the its competitive advantage would disappear. The environment would be cleaner and good jobs would return to the United States. So China’s behavior is an outrage, is it not?

Now, however, there is a looming danger of a new race to the bottom, this one with America as the leader and the Atlantic rather than the Pacific as the arena. Is this prospect any less outrageous?

Appropriate vs. affordable energy pricing

As I detailed in a three-part series earlier this year [1] [2] [3], economists across the political spectrum see appropriately high energy prices as a key to an efficient, environmentally sustainable economy. “Appropriate,” in this case, means prices that include charges for environmental harms—local pollution like smog and mercury emissions, groundwater pollution from fracking, climate change caused by greenhouse gas emissions, everything. Higher prices, in turn, would provide incentives for conservation and clean energy innovation. >>>Read more

New Slideshow: Do Banks Take Excessive Risks?

Banks perform essential economic functions, but they are risky. One of the important questions in financial policy is whether banks take risks that are excessive from the point of view of the economy as a whole.

 This slideshow explores three of the main reasons why many economists believe that banks do take excessive risks: Contagion effects such as bank runs, moral hazard arising from deposit insurance and the too-big-to-fail doctrine, and agency problems that occur when financial executives have incentives to gamble with their shareholders' money.

This slideshow is designed for classroom presentation. Feel free to cut-and-paste it into your lecture or assign it as a supplementary reading to students.

Follow this link to view or download the complete slideshow

Case Study in Supply and Demand: Cows, Bees, and the Soaring Price of Almonds

Almond prices are soaring. As the following chart shows, some varieties are selling for double the price of five years ago, others for three times more. What is driving the upward price trend? Supply and demand is the easy answer. Behind the supply and demand curves lies a more complex story of nuts, cows, and bees.



Cows are out, nuts are in

One of the factors behind the increase in almond prices is a shift in tastes toward foods that consumers perceive as healthier. Milk from cows is out. U.S. consumption of cow’s milk, which consumers associate with artery-clogging cholesterol, has fallen more than third since the 1970s. It is a generational thing. According to an analysis of government data by FoodNavigator-USA.com, each population cohort drinks less milk than the one before. In the late 1970s, Americans of all ages drank, on average, about one glass of milk a day. Thirty years later that was down to about two-thirds of a glass. And it is not just adults who are giving up on cow’s milk. Over the same period, children aged 2 to 12 years cut their daily milk intake from 1.7 glasses to 1.2. >>>Read more

Follow this link to view or download a classroom-ready slideshow that applies supply and demand theory to the market for almonds.

US Adds 204,000 Jobs in October Despite Government Shutdown

The Bureau of Labor Statistics today released its report on the October employment situation. Observers who have been apprehensive about the impact of the partial government shutdown will find the headline numbers surprisingly good. Nonfarm payroll employment increased by 204,000 jobs. The unemployment rate was up, but only by a whisker, rising from 7.24 to 7.28. However, for a number of reasons, these numbers do not fully reflect the impact of the shutdown on the economy.

Let’s begin with the payroll numbers, where the explanation is fairly simple. Payroll jobs are based on a survey of employers. They report how many employees worked or received pay for the pay period that included a certain reference date, in this case October 12^th. Even though the reference date fell during the shutdown, all federal workers, whether on furlough or not, met this requirement, thanks to the generosity of Congress, who decided to award them back pay for days not worked. For that reason, the shutdown had no effect on the number of federal payroll employees. There could well have been effects in the private sector, for example, if a hotel near a national park sent workers home for the season who otherwise would have stayed through the end of October, but those effects were evidently small.


What is more, payroll job numbers for August and September were revised upward by a total of 60,000 jobs. When we take both the new data and the revisions into account (as shown in the following chart), recent payroll numbers do not look at all bad. The 605,000 job gain over the three months from August through October is a healthy improvement from the 452,000 for May through June. (Of course, the September and October numbers are still subject to final revision, so this result could change.) >>>Read more

Follow this link to view or download a classroom-ready slideshow with complete charts of the latest employment situation

US GDP Growth Rises to 2.8% in Q3. Will it Affect the Fed's Decision to Taper?

Today’s advance estimate from the Bureau of Economic Analysis showed U.S. real GDP growing at a 2.8 percent annual rate in the third quarter of 2013, the fastest growth reported since early 2012. The estimate, which reflects economic activity from June through September, was not directly affected by October’s government shutdown, although the data release itself was somewhat delayed. In addition to the growth estimates, the report includes a set of inflation indicators drawn from the national income accounts. These showed that inflation remained below the Fed’s 2 percent inflation target.

The advance estimate, which the BEA bases on data from early in the quarter and extrapolations for later months, is subject to significant revision. For example, the advance estimate for Q2 was 1.7 percent. In the third and most recent estimate for the quarter, that was raised to 2.5 percent. >>>Read more

Follow this link to view or download a classroom-ready slideshow with complete charts of the latest GDP estimates

Delayed Data Show that September Was a Quiet Month for Inflation

Were you waiting nervously for September’s report on the Consumer Price Index? You can relax now. The data, delayed by the government shutdown, are finally out and they hold no big surprises. None at all.

The all-items CPI rose in September at a seasonally adjusted 2.18 percent annual rate. On a year-over-year basis, the CPI was up just 1.18 percent.

The September increase in the CPI was spurred by an uptick in energy prices, which rose 0.8 percent in the month. The increase, however, was entirely due to seasonal adjustment. On an unadjusted basis, energy prices actually dropped in the month. Another way of removing seasonal influences is to note that energy prices in September 2013 were 3.1 percent lower than they were in September 2012.

Food prices, another CPI component that is often volatile, were unchanged for the month, both with and without seasonal adjustment. The food index was up 1.4 percent for the year.
Removing both food and energy gives the core CPI, often thought to better reflect long-term inflation trends. The core CPI rose at a seasonally adjusted annual rate of 1.2 percent in September. Year-on-year it was up by 1.7 percent.

The following chart shows that both the all-items and core CPI have followed a gentle arc over the past three years. After falling essentially to zero at the depth of the recession, inflation speeded up until the middle of 2011, when the trend lines for both the core and all-items CPI reached the 2 percent mark. Since then, inflation has lost steam and shows little sign of turning up any time soon. More data will be coming soon, but this release provides little to support the arguments of those who would like to tighten either monetary or fiscal policy.

Follow this link to view or download a classroom-ready slideshow with additional charts of the latest inflation data. This post was originally published at Economonitor.com.