Median CPI Falls 15th Month to Record Low Level

According to a report released Friday by the Federal Reserve Bank of Cleveland, the median Consumer Price Index was virtually unchanged at 0.0% (0.6% annualized rate) in December. The "median CPI" is a measure of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics' (BLS) monthly CPI report.

Earlier Friday, the BLS reported that the seasonally adjusted CPI for all urban consumers was increased 0.1% (1.6% annualized rate) in December. The CPI less food and energy increased 0.1% (1.4% annualized rate) in December on a seasonally adjusted basis. Over the last 12 months, median CPI inflation was 1.20% compared to CPI inflation of 2.70% (see chart above).

According to the Cleveland Fed:

"Federal Reserve policymakers are always on the lookout for inflation (i.e., a general increase in prices), and they use a variety of measures to gauge inflation trends. One such measure is the Consumer Price Index (CPI) published by the BLS.

The CPI measures changes in the prices of a number of goods and services—things like gas, rent, groceries, and clothing. However, the prices of some of these items—such as food and energy—are volatile; they can change a lot from month to month, based on supply and demand. So the BLS also publishes a measure of “core” prices that excludes food and energy prices. Researchers at the Federal Reserve Bank of Cleveland and Ohio State University devised a different way to get a “core CPI” measure—or a measure of underlying inflation trends. It’s called the Median CPI.

To calculate the median CPI, the Federal Reserve Bank of Cleveland looks at the prices of the goods and services published by the BLS. But instead of calculating a weighted average of all of the prices, as the BLS does, the Cleveland Fed looks at the median price change—or the price change that’s right in the middle of the long list of all of the price changes. According to research from the Cleveland Fed, the median CPI provides a better signal of the inflation trend than either the all-items CPI or the CPI excluding food and energy." (emphasis added)

MP: Historically, the median CPI has been 50% more accurate at gauging future inflation than the traditional CPI (based on the Cleveland Fed's research), and the median CPI is certainly not now showing any signs of inflationary pressures.

In fact, the decrease in December's median CPI to 1.24% from 1.30% in November was the 15th consecutive monthly drop in median CPI inflation, and the lowest year-to-year inflation rate in the history of the Cleveland Fed's series back to 1984 (historical data here). Therefore, it would seem that a stronger case could be made for deflation right now, than the case for inflation.