Data for the Classroom from
Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/ US Inflation Data: Headline CPI Inflation Slows, Core Inflation Up a Bit in August Posted September 16, 2011 Terms of Use: These slides are made available under Creative Commons License Attribution—Share Alike 3.0 . You are free to use these slides as a resource for your economics classes together with whatever textbook you are using. If you like the slides, you may also want to take a look at my textbook, Introduction to Economics , from BVT Publishers.

Headline CPI Inflation Slows Slightly
in August <ul><li>The inflation number most likely to make headlines is the monthly change in the Consumer Price Index for all items purchased by urban consumers </li></ul><ul><li>The all-items CPI rose at a seasonally adjusted annual rate of 4.6% in August, 2011, down a bit from the July rate of 6.2% </li></ul><ul><li>Gasoline and food prices contributed to inflation in August, as in the previous month. </li></ul>Posted September 16, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

Core Inflation was Slightly Higher
in August <ul><li>Food and energy prices are highly volatile and account for much of the month-to-month variation in the CPI </li></ul><ul><li>Their effect can be removed by taking the food and energy components out of the CPI </li></ul><ul><li>The result is called the core inflation rate </li></ul><ul><li>Because food and energy prices contributed relatively less to inflation in August than in July, core inflation rose just a bit. </li></ul>Posted September 16, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

The “Trimmed Mean” CPI <ul><li>Another
way to remove volatility from the CPI series is the “16% trimmed mean CPI” published by the Federal Reserve Bank of Cleveland </li></ul><ul><li>The trimmed mean CPI removes the 8% of prices that increase most and the 8% that increase least in each month, whether they are food, energy, or something else </li></ul><ul><li>In July, the trimmed mean inflation rose slightly and remained slightly more rapid than the core measure </li></ul>Posted September 16, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

Which Measure is Best? <ul><li>The
CPI for all items gives the most accurate picture of current changes in the cost of living for urban consumers </li></ul><ul><li>The core CPI and trimmed mean CPI give more accurate pictures of underlying trends </li></ul><ul><li>Economists at the Fed look closely at the core and trimmed mean CPIs to judge the effect of monetary policy </li></ul><ul><li>In contrast, the all-items CPI includes food and energy prices that are set on world markets, beyond direct control of monetary policy </li></ul>Posted September 16, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

The Longer Term Trend <ul><li>To
see longer term trends in inflation, it is useful to look at annual average inflation, not just month-to-month changes </li></ul><ul><li>All measures of inflation rates slowed during the global recession, but they are now rising again </li></ul><ul><li>The Fed considers 2% annual inflation to be consistent with prudent monetary policy in the long run </li></ul>Posted September 16, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com