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January Price Statistics or the definition of "subdued".



03.02.10

The headline CPI (1) (Characters Per Inch) The measurement of the density of characters per inch on tape or paper. A printer's CPI button switches character pitch.

(2) (Counts Per I
 jumped up 2.0 percent (annualized annualized

Of or relating to a variable that has been mathematically converted to a yearly rate. Inflation and interest rates are generally annualized since it is on this basis that these two variables are ordinarily stated and compared.
 rate) in January, mostly on a spike in energy prices (up 39 percent). However, the real story is the first appreciable ap·pre·cia·ble  
adj.
Possible to estimate, measure, or perceive: appreciable changes in temperature. See Synonyms at perceptible.
 decline in the core CPI index--it fell 1.6 percent in January--since December 1982, which pulled the three-month annualized growth rate down to zero and the 12-month growth rate down to 1.6 percent. The release pointed to decreases in shelter, new vehicles, and airline fares as the culprits for the decrease in the core during the month.
January Price Statistics

                                Percent change, last

                                                        2009
                        1mo.  3mo.  6mo.  12mo.  5yr.  average
                        (a)   (a)   (a)          (a)

Consumer Price Index

  All items              2.0  2.3   2.6    2.6   2.6     2.8

  Less food and energy  -1.6  0.0   0.8    1.6   2.1     1.8

  Median (b)             0.5  0.6   0.8    1.0   2.5     1.2

  16% trimmed mean (b)   1.0  1.0   1.1    1.2   2.4     1.3

Producer Price Index

  Finished goods        18.3  3.3   4.8    5.0   3.4     5.3

  Less food and energy   4.3  3.3   1.1    1.0   2.1     0.9

(a.) Annualized.
(b.) Calculated by the Federal Reserve Bank of Cleveland.

Sources: U.S. Department of Labor, Bureau of Labor Statistics; and
Federal Reserve Bank of Cleveland.


Measures of underlying inflation trends produced by the Federal Reserve Bank of Cleveland--the median CPI and the 16 percent trimmed-mean CPI--rose 0.5 percent and 1.0 percent, respectively, in January. These readings are very much in line with where our measures have been over the past few months. The three-month growth rate in the median is 0.6 percent, while the trim is up 1.1 percent over the past three months.

That said, the longer-term trends in the trim and median have come down sharply relative to the core CPI over the past year or so. Since August 2008, the 16 percent trimmed-mean measure has slipped from a growth rate of 3.6 percent to 1.2 percent in January 2010, while trend in the median CPI has declined from 3.2 percent to 1.0 percent. In fact, the 12-month growth rate in the median CPI--at 1.0 percent--is at a record low. Over that same time period, the core CPI has come down only 0.9 percentage point.

As a measure of underlying inflation trends, the core CPI suffers somewhat from its arbitrary nature. By excluding just food and energy, its implicit stance is that food and energy prices are always transitory and all other price movements may be indicative of changing inflation. This leaves the core CPI open to transitory price movements in other categories. A current example of a sector-specific shock has been the recent trend in used auto prices (up an annualized 28 percent over the past six months), which many analysts have attributed (at least in part) to a decrease in the supply of used autos, related to the CARS program. Also, some month-to-month volatility may cloud the core CPI's near-term trends. Trimmed-mean measures, such as the median CPI and 16 percent trimmed-mean CPI, seek to minimize transitory effects and excess volatility, providing a "less cloudy" reading on underlying inflation.

[GRAPHIC OMITTED]

Another way to illustrate the recent softness in retail prices is to look at the price-change distribution. In January (and over the past three months), roughly 60 percent of the consumer price index (by expenditure weight) either rose at rates less than 1.0 percent or posted outright price declines, compared to an average of 30 percent between 2003 and 2007. On the upper end of the distribution, just 27 percent of the consumer market basket market basket
n.
1. A grocery cart.

2. A group of products or services in a specific market, especially when considered in terms of its fluctuating cost in determining a consumer price index:
 has been rising at rates exceeding 3.0 percent over the past three months, compared to 44 percent over the roughly stable inflation period between 2003 and 2007.

[GRAPHIC OMITTED]

The most recent readings in the median CPI, 16 percent trimmed-mean CPI, and core CPI are all below their respective longer-term trends, suggesting a continued disinflationary trend. Given low capacity utilization Capacity Utilization measures the rate at which a firm makes use of their capital productive capacities, such as factories and machinery. Capacity Utilization generally rises when the economy is healthy and falls when demand softens.  rates, excess labor market labor market A place where labor is exchanged for wages; an LM is defined by geography, education and technical expertise, occupation, licensure or certification requirements, and job experience  slack, and declining unit labor costs, underlying inflation trends are likely to remain subdued sub·due  
tr.v. sub·dued, sub·du·ing, sub·dues
1. To conquer and subjugate; vanquish. See Synonyms at defeat.

2. To quiet or bring under control by physical force or persuasion; make tractable.

3.
.
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Title Annotation:Inflation and Prices
Author:Meyer, Brent
Publication:Economic Trends
Date:Mar 1, 2010
Words:706
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