Friday, March 15, 2013

Consumer inflation running at a 2-2.5% rate


The CPI jumped 0.7% in February, but it was almost entirely energy-related. Both the headline and the core CPI are up 2.0% in the past 12 months. This is slightly below the long-term trend of 2.5%, as illustrated in the chart above. In short, no news here, though I would be happier if inflation were 1% and the Fed were raising rates modestly rather than promising to keep them very low for a long time.

3 comments:

steve said...

scott, is there a way to ascertain the long term "inflation" rate by NOT factoring out food and energy?

Scott Grannis said...

Re: the long-term rate of inflation.

Arguably, the best measures of inflation including everything are the GDP deflator and the Personal Consumption Expenditures Deflator. Both show that prices have risen by a compound annual rate of 2.0% over the past 20 years. The CPI is up at a 2.5% annual rate over the same period.

The CPI tends to overstate inflation, because it measures only a limited basket of goods and services, and it is not dynamically adjusted to reflect changing purchasing patterns of consumers. Over very long periods it tends to overstate inflation by about 0.5% per year.

William McKibbin said...

The US inflation is still hovering around the Fed's inflation target of 2%, which is low compared to the US inflation average of about 3% since 1913 -- inflation today is tame.