US CPI inflation rose to an annual rate of 8.4 percent in February, but inflation expectations remained well below 2 percent

1. Data for your Classroom from
Ed Dolan’s Econ Blog
Headline Inflation Jumps in
February but Expectations
Remain Well Anchored
March 15, 2013
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2. Consumer Price Inflation Jumps Sharply in February
 The all-items U.S. consumer price
index rose at an annual rate of
8.47% in February 2013, its fastest
rate in almost four years
 The spike followed two months of
near-zero inflation
 Almost all of the increase came from
energy prices, especially the price of
gasoline. Energy prices have a
weight of 9.5% in the CPI
Posted Mar. 15, 2013 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

3. Core Inflation Falls Slightly
 Food and energy prices are volatile
and usually account for much of the
month-to-month change in the CPI
 Their effect can be removed by taking
food and energy out of the CPI. The
result is called the core inflation rate.
 The annualized core inflation rate for
February was 2.06%, down from
January’s 3.04%
Posted Mar. 15, 2013 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

4. Trimmed Mean Inflation Rises Slightly
 Another way to remove volatility is
the 16% trimmed mean CPI
published by the Federal Reserve
Bank of Cleveland. It removes the
8% of prices that increase most and
the 8% that increase least in each
month (or decrease most), whatever
they are
 The 16 percent trimmed mean CPI
increased slightly to an annual rate of
2.59 percent in February
Posted Mar. 15, 2013 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

5. Which Measure is Best?
 The CPI for all items gives the most
accurate measure of current
changes in the cost of living
 Economists at the Fed look closely
at the core and trimmed mean CPIs,
and at other inflation indicators
derived from the GDP accounts, to
judge the effect of monetary policy
on underlying inflationary trends
Posted Mar. 15, 2013 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

6. Inflation Expectations Remain “Well Anchored”
 In early December, the Fed
announced that it would keep interest
rates low until the unemployment rate
fell to 6.5 percent (it is now 7.7
percent) and as long as inflation
expectations remained “well
anchored,” that is, below 2 ½ percent
for a two-year time horizon and below
2 percent for longer horizons.
 This chart, based on data from the
Cleveland Fed, suggests that inflation
expectations remain “well anchored.”
Posted Mar. 15, 2013 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

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