Saturday, February 20, 2010

Median CPI Inflation Falls 16th Month: Record Low

According to a report released Friday by the Federal Reserve Bank of Cleveland, the median Consumer Price Index was virtually unchanged at 0.0% (0.5% annualized rate) in January. The "median CPI" is a measure of core inflation calculated by the Federal Reserve Bank of Cleveland based on data in the monthly CPI report from the Bureau of Labor Statistics' (BLS).

Earlier Friday, the BLS reported that the seasonally adjusted CPI for all urban consumers was increased 0.2% (1.6% annualized rate) in January. The CPI less food and energy decreased 0.1% in January. Over the last 12 months, median CPI inflation was 1.0% compared to CPI inflation of 2.6% (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 January's median CPI to 1.0% from 1.20% in December was the 16th 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, as I reported a month ago, it would seem that a stronger case could be made right now for deflation, than making a case for inflation.


At 2/20/2010 4:46 PM, Anonymous Benny "Tell It LIke It Is Man" Cole said...

Inflation is dead.
Office rents, factory rents, labor...all dead.
Consumer goods and electronic goods? The price is going down, not up.
The only thing that becomes more and more expensive is military goods and services.
There is an answer to that: Cut the Defense Department budget in half, like the Cato Institute says.

At 2/21/2010 1:14 AM, Anonymous Anonymous said...

Actually, entitlements become more and more expensive, too. They now consume over 50% of the federal budget vs. about 20% for the military.

And, unlike defense, entitlements are NOT one of the enumerated powers found in the Constitution and entitlements DON'T keep us free. In fact, they make us LESS free.

At 2/21/2010 2:35 AM, Anonymous Benny "Tell It LIke It Is Man" Cole said...

Cut entitlements, if you wish, Anon. But they are financed by payroll taxes (Medicare and SS, the two biggest programs).
Military outlays and VA spending, and accumulated debt from past military outlays consume about 50 percent of federal income taxes.
In fact, about 70 percent of federal outlays financed by income taxes are eaten up by DoD, USDA, VA, Commerce and Itterior and debt--all Red State Socialists or Red Ink Republican favorites.
That is why Reagan is worshipped today--he was the Father of Red Ink Republicanism, now a religion.
The last R-Party prezzy to run black ink? It goes back, back....a way back, she's gone (sorry, Vin Scully).
Eisenhower--who oversaw with 90 percent top federal income tax rates.
In other words, it has been a half-century and counting since a Republican president even proposed a balanced budget.
You sense a trend?

At 2/24/2010 1:43 PM, Blogger Charles said...

A 1% inflation rate is extraordinarily high given the fact that one sixth of the labor force is out of work. In fact data show that workers are receiving pay increases in spite of unemployment.
Core CPI and measures like it treat food and energy prices as exogenous variables whereas they are the prices that are most sensitive to monetary policy through the mechanism of the exchange rate. Inflation is now in the range of 2-3%, a rate with devastating impact on people with fixed incomes.


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