Thursday, September 15, 2011

Taking a longer view of CPI trends

Doug Short has now posted some longer views of the Consumer Price Index CPI to complement those published by the Bureau of Labor Statistics (BLS).  This provides additional context to help us think about what the latest numbers mean.

Here's his view of the data since 2000 with the shaded area from 1.75% to 2.00% representing the Core (CPI less food and energy) target rate for the Federal Reserve.
UPDATE 20 September 2011
With the benefit of this 12 year view, we can now put the 1 year view from BLS into better perspective.  For example, we can see the headline value of 3.7% (in red) is now back up into it's 2004-2007 range following a 2 step process which looks like a reversion to mean process.  Will it overshoot? we can't tell?  We also see that the CORE CPI (in blue) looks like it is reverting to the mean of the past 12 years.  

And here's Doug's  really long view since 1957.
UPDATE 20 September 2011
In this much longer view, some further nuances come into view including the obvious 3 peaks of inflation in 1970, 1975, and 1980, the much lower inflation rates from 1960 to 1965. We can also see how the Headline CPI and the Core CPI are more likely to diverge from each other after 1985.  We also see the CORE rate showing a steady decline since 1990 that was not matched by the Headline CPI.

Doug also has some charts showing the PCE (Personal Consumption Expenditure) Index and the Core PCE Index as shown below since 2000.:

Check out Doug's original post for additional details.

We will keep our eyes open for other alternatives view of these metrics that get posted today.

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