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Saturday, January 17, 2015

US Inflation

Here are 4 graphs that give an overview of inflation from the perspective of both producers and consumers. Data are percent change from the same month of the previous year.

On the left is the overall movement, on the right data that excludes food and energy. In other words, if we ignore the recent drop in commodity prices, which is a one-time event rather than a trend, what does inflation look like? (Click on the graphs to enlarge them.)

PPI: All Commodities
PPI less food & energy
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CPI All Items
CPI less food & energy

So as we start the New Year, the news is of an economy where growth is not accelerating and where labor markets have slack, such that between them "push" (labor costs, the biggest cost component for the economy as a whole) and "pull" (weak demand) are not leading to price increases. Indeed for the past half year inflation has trended down, and is well below the Fed's target of 2% [their preferred metric is PCE inflation, I won't detail how that differs here, except to add that the picture it gives is nearly identical, except that the level is lower, 1.4% instead of 1.6%.]

Since I'm teaching our senior "capstone" course this term under the theme of "modern macroeconomics" I'll periodically publish data on this site, roughly once a week. So this is but the first installment of many. One theme for the course is the size of "the" fiscal multiplier (in quotes because policy in a deep recession might reasonably be expected to have a different impract from that in normal times). What impact doees fiscal policy have in different classes of macro models (old-school structural vs new-school DSGE)? How can economists measure it empirically, given the general lack of unanticipated [as opposed to built-in] variation in policy? Of course I'll also try to familiarize students (and blog readers) with the current US policy stance. Is now the time to be trimming monetary stimulus? to be cutting back on public works? For the latter, doesn't the US have an aging highway system and network of bridges that are showing their age? If so, isn't the time to address that when there's no cost pressure and when borrowing costs are cheap? But for the data side, at a minimum we'll delve into employment, the term structure of interest rates and other metrics besides fiscal ones.

Now to my annual "Faculty Activity Report," not that I'll get a wage bump out of it, other than the one W&L provides to offset inflation. Er, hopefully it's the "core" rate sans food & energy that they use....but I shouldn't complain. While it's not much, next door at VMI [Virginia Military Institute] the faculty get nothing.