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Ed Dolan’s Econ Blog US Inflation Continues to Run Below Target February 21, 2014 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.

CPI Inflation Continues to Run
Below Target  The US consumer price index rose at a seasonally adjusted annual rate of 1.75 percent in January, 2014  Over the past two years, inflation has trended downward  The January rate was well below the Fed’s 2 percent inflation target Posted February 21, 2014 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

The Role of Seasonal Adjustment
 Monthly data is often seasonally adjusted to remove the effects of price changes that happen at predictable times of year, such as higher gasoline prices in the summer driving season  From time to time, the BLS updates its seasonal adjustment factors  Newly revised adjustment factors show less month-to-month volatility in the seasonally adjusted CPI, compare with previously released data Posted February 21, 2014 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

Year-on-year inflation is also trending
down  Another way to eliminate seasonal factors is to look at year-on-year changes in the CPI  This chart shows both the all-items CPI and also the core CPI, which removes volatile food and energy prices  Both inflation rates have trended down over the past two years Posted February 21, 2014 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

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  In mid-2013, expected inflation rates began to rise  Since late summer, expected inflation has leveled out, and remains well below the Fed’s 2 percent target Posted February 21, 2014 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

The Bottom Line The bottom
line: Despite the gradually strengthening recovery, an upside outbreak of inflation remains among the least significant risks facing the U.S. economy Posted February 21, 2014 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

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