The CPI increased at an annual rate of 2.4 percent in March 2014 but the expected rate of inflation over 5 and 10 year time horizons remains well below the Fed's target of 2 percent

1. Data for your Classroom from
Ed Dolan’s Econ Blog
Consumer Price Inflation Rises
in March, but No Sign of an
Increase in Inflation Expectations
March 19, 2014
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2. Consumer Price Inflation Edges Up in March
 The U.S. consumer price index rose
at a seasonally adjusted rate of 2.43
percent in March 2014, up slightly
from the previous month.
 Prices for food and cars helped push
the average higher.
 In this figure, a fourth-power
polynomial trendline is used to
smooth month-to-month variation
March 19, 2014 Ed Dolan’s Econ Blog

3. Core Inflation Rate Also Rises
 Another way to smooth month-to-
month variation is to remove volatile
food and energy prices from the all-
items CPI
 The result is called the core CPI
 In March, an increase in food prices
was almost entirely offset by a
decrease in energy prices, so that
core and all-items inflation was
approximately the same
March 19, 2014 Ed Dolan’s Econ Blog

4. Little Change in Expected Inflation
 The Cleveland Fed publishes an index
of expected inflation based on the
prices of Treasury Inflation Protected
Securities (TIPS)
 In the summer of 2013, inflation
expectations moved higher after the
Fed announced that it would taper its
program of massive asset purchases
 Since September 2013, inflation
expectations have remained
approximately steady, with some
month-to-month variation
March 19, 2014 Ed Dolan’s Econ Blog

5. The Bottom Line
 The Federal Reserve has set a
target of 2 percent inflation, as
measured by the Personal
Consumption Deflator, equivalent to
about 2.5 percent inflation for the
CPI
 The latest data on current and
expected inflation show that the
economy is still falling short of the
Fed’s inflation target
March 19, 2014 Ed Dolan’s Econ Blog

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