The year-on-year change in the US CPI hit a four year low of just 0.95 percent in October, 2013. For the month of October alone, the CPI fell at a seasonally adjusted annual rate of -0.71 percent. Much of the decrease was due to a sharp decrease in the price of gasoline

1. Data for your Classroom from
Ed Dolan’s Econ Blog
US Inflation hits Four-Year Low
on Fall in Gasoline Prices
Nov. 21, 2013
Terms of Use: These slides are provided under Creative Commons License Attribution—Share Alike 3.0 . You are free
to use these slides as a resource for your economics classes together with whatever textbook you are using. If you like
the slides, you may also want to take a look at my textbook, Introduction to Economics, from BVT Publishing.

2. Year-on-Year Inflation Falls to Four-Year Low
 The US consumer price index for
October 2013 was just 0.95 percent
higher than in October 2012
 That marks the smallest year-onyear change in four years (slightly
below the 1.05 percent reported for
June 2010)
 Much of the slowdown was due to a
fall in the price of gasoline
 The core inflation rate, which
excludes food and energy, has also
been trending down in recent
months, but not quite so sharply
Posted Nov. 21, 2013 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

3. The Role of Seasonal Adjustment
 Year-on-year data is good for showing
medium turn trends
 To see what is happening right now, it
is useful to look at monthly
data, stated in annual rates of change
 Unlike year-on-year data, monthly
data requires seasonal adjustment
 Non-adjusted data show how the cost
of living actually changed in the month
 Seasonally adjusted data shows how
the cost of living looks if we remove
the effect of changes in prices that
usually occur at a given time of year
(continued)
Posted Nov. 21, 2013 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

4. Seasonal Adjustment in October 2013
 For example, in October 2013, the
price of gasoline, which accounts for
about 5 percent of the CPI, fell by
about 4.9 percent
 That brought the annual rate of
change of the unadjusted CPI down to
-3.05 percent for October
 Usually gasoline prices decrease by
about 2 percent in October
 If we remove the influence of that
normal seasonal decrease, the
seasonally adjusted CPI fell at an
annual rate of -.71 percent in the
month
Posted Nov. 21, 2013 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

5. Expected Inflation
 The Cleveland Fed uses the prices of
Treasury Inflation-Protected Securities
to estimate the rates of inflation
expected by participants in financial
markets
 During the spring and summer of
2013, expected inflation rates began
to rise
 Now, during October and
November, expected inflation rates
have begun to fall again
Posted Nov. 21, 2013 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

6. The Bottom Line
 The bottom line is that inflation
remains quiet, with a downward
trend and low expectations for future
inflation
 If we take 2 percent as a reasonable
target rate of inflation, the latest data
give little reason to with draw fiscal
or monetary stimulus at this time
Posted Nov. 21, 2013 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

7. For more slideshows, follow Ed Dolan’s Econ Blog
Follow @DolanEcon on Twitter
Click here to learn more about Ed Dolan’s Econ texts
or visit www.bvtpublishing.com