Oregon Economic Forecast » Inflation http://oregon.clucerf.org Center for Economic Research and Forecasting Mon, 06 Feb 2012 17:06:38 +0000 en hourly 1 http://wordpress.org/?v=3.0.3 Prices http://oregon.clucerf.org/2010/05/prices/ http://oregon.clucerf.org/2010/05/prices/#comments Mon, 03 May 2010 22:38:35 +0000 Dan Hamilton http://oregon.clucerf.org/?p=602 Recent data releases show that inflation remains well contained.  In fact, by one key measure, inflation is at a historical low, causing increasing concern about deflation.  From the March Consumer Price Index press release we see that first quarter overall price levels have grown about 2.3 percent from 2009 quarter 1.  This measure includes . . . → Read More: Prices]]> Recent data releases show that inflation remains well contained.  In fact, by one key measure, inflation is at a historical low, causing increasing concern about deflation.  From the March Consumer Price Index press release we see that first quarter overall price levels have grown about 2.3 percent from 2009 quarter 1.  This measure includes energy and food components that are volatile.  The Core CPI, which omits food and energy components, is much lower at 1.3 percent year-on-year.  The Consumer Price Index measures prices in a way that presumes that households have no ability to switch out of certain goods/services/commodities if their price rises.  It measures inflation for a fixed basket of items.

The national accounts Core PCE deflator, a measure of prices that does not fix the basket of items so rigidly, is the measure that the Fed watches most closely in setting monetary policy.  From Friday’s first estimate of GDP we also have the first estimate of Core PCE inflation for 2010 quarter 1.  It is now at its lowest quarter-on-quarter growth rate since 1959 at 0.6 percent.  Charts of these data are included below.

It is interesting that with real consumption growth of 3.6 percent, inflation is this low.  Apparently, it is the household who has the upper hand in the retail marketplace.  This will likely continue for at least another quarter.  

Low Core PCE inflation makes the FED’s job easier, as their expansionary monetary policy has not yet created any inflation.  This is a good thing, since monetary policy challenges still remain.  As the NBER admitted a couple of weeks ago, we are not necessarily out of the woods yet.

]]> http://oregon.clucerf.org/2010/05/prices/feed/ 0 Prices and FED Policy http://oregon.clucerf.org/2010/02/prices-and-fed-policy/ http://oregon.clucerf.org/2010/02/prices-and-fed-policy/#comments Fri, 19 Feb 2010 20:51:11 +0000 Dan Hamilton http://oregon.clucerf.org/2010/02/prices-and-fed-policy/ Prices

The January Producer Price Index (PPI) data released yesterday February 18, appeared to show that price pressures were building up again with finished goods prices rising 4.6 percent over 12 months ago, and rising 1.4 percent over the prior month. The January Consumer Price Index (CPI) data, released today, showed that the all-items . . . → Read More: Prices and FED Policy]]> Prices

The January Producer Price Index (PPI) data released yesterday February 18, appeared to show that price pressures were building up again with finished goods prices rising 4.6 percent over 12 months ago, and rising 1.4 percent over the prior month. The January Consumer Price Index (CPI) data, released today, showed that the all-items inflation measure subsided slightly from December’s 2.7 percent to 2.6 percent. The CORE measure, excluding the volatile food and energy components, was also down, from 1.8 in December to 1.6 percent in January. A chart of the CPI growth measures is included below.

Analysts sometimes see the PPI measure as a leading indicator of the CPI. This is truer for all-items CPI rather than core, since the PPI measure is more easily influenced by energy. So while the all-items inflation rate might grow in coming months, we do not expect that CORE inflation will be influenced much.

FED Policy

Yesterday, the FED announced that they have raised the discount rate from 0.50 to 0.75 percent. They indicated that “continued improvement in financial market conditions” allowed them this change in policy which is an attempt to “normalize” the Federal Reserve’s lending facilities. They noted that this change is not expected to lead to tighter financial conditions for households and businesses.

The FED has been gradually unwinding its extraordinary efforts to support the economy through the financial crises. Those extraordinary efforts have been underway since mid-2008, and the relatively long period of low-cost credit and bond-market support could bring inflation roaring to life. What has held inflation in check since mid-2008 has been the very weak economy.

We applaud these efforts, as long as the economy has indeed recovered from its illnesses, but we are concerned that it is premature. We are worried about ongoing problems in banking and real estate, and so we are worried about how healthy the patient really is. We hope that the FED is right – we hope the patient is truly getting better.

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