Data for the Classroom from
Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/ US Inflation Data: Headline CPI Falls for Second Month in a Row in November Posted December 16, 2011 Terms of Use: These slides are made available 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 Publishers.

Headline CPI Falls again in
November <ul><li>The US all-items CPI fell in November for the second consecutive month </li></ul><ul><li>The November decrease was very small, just 0.23 percent at an annual rate, but nevertheless a decrease </li></ul><ul><li>Falling prices for gasoline and other forms of energy were the biggest factor pulling the index downward. </li></ul>Posted December 16, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

Core Inflation Little Changed <ul><li>Food
and energy prices are highly volatile and account for much of the month-to-month variation in the CPI </li></ul><ul><li>Their effect can be removed by taking food and energy out of the CPI </li></ul><ul><li>The result is called the core inflation rate, which was 2.1% in November (monthly change stated as annual rate), up just slightly from October </li></ul><ul><li>Rising prices for medical care, shelter, food, and apparel contributed to the increase in core inflation </li></ul>Posted December 16, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

Trimmed Mean Inflation Slows <ul><li>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, whatever they are </li></ul><ul><li>Trimmed mean inflation slowed to a 0.99% annual rate in November, the lowest in over a year </li></ul><ul><li>the Fed considers inflation of about 2 percent to be consistent with prudent monetary policy </li></ul>Posted December 16, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

Which Measure is Best? <ul><li>The
CPI for all items gives the most accurate picture of current changes in the cost of living for urban consumers </li></ul><ul><li>The core CPI and trimmed mean CPI give more accurate pictures of underlying trends </li></ul><ul><li>Economists at the Fed look closely at the core and trimmed mean CPIs to judge the effect of monetary policy </li></ul><ul><li>In contrast, the all-items CPI includes food and energy prices that are set on world markets, beyond direct control of monetary policy </li></ul>Posted December 16, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

The Longer Term Trend <ul><li>To
see longer term trends in inflation, it is useful to look at year-on-year changes, which compare each month’s price level with that of the same month in the year before </li></ul><ul><li>All y-o-y measures of inflation rates slowed during the global recession. They rose for most of 2011, but are now beginning to fall again as the base for y-o-y comparisons moves away from the extremely low monthly rates of 2010 </li></ul>Posted December 16, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com