The US CPI rose at an annual rate of 3.17 percent in April 2014, the fastest in 10 months, but measures of expected inflation over a 5- and 10-year time horizon remained well below the Fed's 2 percent target

1. Data for your Classroom from
Ed Dolan’s Econ Blog
Consumer Price Inflation Rises
in April, but Inflation
Expectations Remain Flat
May 17, 2014
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2. Consumer Price Inflation Rises in March
 The U.S. consumer price index rose
at a seasonally adjusted rate of 3.17
percent in April 2014, the second
consecutive monthly increase
 Prices for gasoline, cars and medical
services helped push the average
higher.
 In this figure, a fourth-power
polynomial trendline is used to
smooth month-to-month variation
May 17, 2014 Ed Dolan’s Econ Blog

3. Core Inflation Rate Also Rises
 Another way to smooth month-to-
month variation is to remove volatile
food and energy prices from the all-
items CPI
 The result is called the core CPI
 Without the increase in gasoline
prices, the core CPI rose a bit less
than the all-items CPI in April. Still, it
was the second monthly increase in a
row.
May 17, 2014 Ed Dolan’s Econ Blog

4. Little Change in Expected Inflation
 The Cleveland Fed publishes an index
of expected inflation based on the
prices of Treasury Inflation Protected
Securities (TIPS)
 In the summer of 2013, inflation
expectations moved higher after the
Fed announced that it would taper its
program of massive asset purchases
 Since September 2013, inflation
expectations have remained
approximately steady. Expectations
were essentially unchanged in April
May 17, 2014 Ed Dolan’s Econ Blog

5. The Bottom Line
 The Federal Reserve has set a
target of 2 percent inflation, as
measured by the Personal
Consumption Deflator, equivalent to
about 2.5 percent inflation for the
CPI
 The latest data on current and
expected inflation show that the
economy may be edging toward the
Fed’s target, but is not there yet
May 17, 2014 Ed Dolan’s Econ Blog

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