Thursday, February 17, 2011

Median CPI Inflation Below 1% for the 12th Month

According to a report released today by the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (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 today, the BLS reported that the seasonally adjusted CPI for all urban consumers was up by 0.4% in January. The CPI less food and energy increased 0.2% in January. Over the last 12 months, median CPI inflation was 0.8%, compared to CPI inflation of 1.6% (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 not now showing any early signs of inflationary pressures.  Although the median CPI inflation rate increased to 0.8% in January from 0.6% in December, it's been below 1% in every month since last January, which is the lowest inflation over a 12-month period in the history of the median CPI index back to 1984 (see chart). 


At 2/17/2011 7:59 PM, Blogger aorod said...

So why are commodities going up?

At 2/17/2011 8:32 PM, Blogger Ben Eng said...

Contrast the message on core inflation with the trends in the FAO Food Price Index. There is clearly a disconnect.

At 2/17/2011 8:36 PM, Blogger Buddy R Pacifico said...

The search term "CPI" is soaring in February according to Google Trends. Inflation and CPI is on a lot minds right now.

At 2/17/2011 8:58 PM, Blogger VangelV said...

According to the Cleveland Fed:...

Well, according to the previous methods used by the Fed we get a different story and a better explanation of the deceptive methods used to hide reality.

At 2/18/2011 4:57 AM, Blogger juandos said...

"According to a report released today by the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (0.5% annualized rate) in January"...

Te me lies, tell me sweet little lies...

At 2/18/2011 5:20 AM, Blogger Benjamin Cole said...

Inflation is dead, get over it.

The USA can import goods, capital, labor, services.

You know that eight-track of Liberace you think is so kicking? Put it next to your inflation concerns, losers.

At 2/18/2011 9:01 AM, Blogger Paul said...

I knew I smelled something. Benji is back.

Hey Benji, how did you enjoy your boyfriend's budget? Are you cheering on the GOP's attempts to cut spending? Or, as usual, are you clueless about current events?

At 2/18/2011 9:25 AM, Anonymous Anonymous said...

Too many people see the CPI and think it somehow applies to them personally. The only way to measure your personal CPI is to track your own spending in categories (I use food, fuel, medical, insurance, taxes, shelter . . . on an Excel spreadsheet by month and by year).

The CPI is important when it comes to receiving cost of living raises or for the government/fed to use to make decisions for the country as a whole, but it is rather meaningless for anything on an individual level of measurement. I am surprised how much discussion that something that does not apply to anyone receives. Your personal finances will not match anything published by the BLS unless it just happens to be a random event.

At 2/18/2011 9:57 AM, Blogger VangelV said...

Inflation is dead, get over it.

The USA can import goods, capital, labor, services.

You know that eight-track of Liberace you think is so kicking? Put it next to your inflation concerns, losers.

Your postings bring back memories of someone.

At 2/18/2011 10:12 AM, Blogger morganovich said...

this whole argument about the cleveland fed is recursive.

if CPI is methodologically unsound (and it is), then so is the clevelnd fed which used the same methodology and data.

claiming it is "more accurate" at approaching an imaginary number is meaningless.


i think that too many people are willing to swallow nonsensical government statistics uncritically.

CPI does apply to us. it applies to all of us. sure, your personal costs are likely to be different, but it ought to balance out with a weighted average of people, and that is just not the case.

every non meddled with measure is showing that inflation is here and accelerating.

the last 30 days of the BPP annualize to something like 9% inflation, and that's online prices, the most competitive and deflationary prices in the economy.

we see even higher inflation in the labor department numbers which are not subjected to the BLS methodology.

you can set your scale to read 10 pounds lighter, but it won't make your pants fit.

this BLS obfuscation is not going to change what is really going on. in fact, it's making it worse by driving ultra loose monetary policy.

hey, it's fantastic for me in the short run, but this is going to wreck the economy in the intermediate term.

the only thing worse than having to relive the economy of the 70's is having to do it while being told it's the economy of the 90's. that's how you create the economy of the 30's...

At 2/18/2011 1:57 PM, Blogger juandos said...

Good one vangeIV!!!

At 2/19/2011 4:52 AM, Blogger Benjamin Cole said...

Yes, there is huge conspiracy of government and non-government economists to hide the truth about inflation.

Losers, go on to the next argument.

We have a recovery, a bull market and low inflation. You guys have obviously missed the boat.

At 2/19/2011 8:54 AM, Blogger VangelV said...

We have a recovery,...

Actually, you don't have one yet. Unemployment stands at more than 22% and even the government's own U-6 number shown at more than 15%.

a bull market

Really? If you adjust for the true inflation rate the market is still well below its 2000 high. The Dow to Gold ratio keeps falling and is on its way to one. Debt levels have exploded and without the money printing by the Fed we would be looking at a collapsing market. Nominal pictures are for losers or economic illiterates. Which one are you?

and low inflation.

Using the same methodology to measure CPI as we did in the 1970s we are looking at 8%. That is not 'low inflation.'

You guys have obviously missed the boat.

I don't know about you but my biggest position is silver equities. I also own agriculture, gold, base metals, and energy companies. Those have trounced the puny nominal gains in the Dow and S&P. The true safe play is the, 'fiat currencies will die,' trade. Bet on agricultural companies, energy, and buy lots of metals, particularly silver. People looking for nominal gains and buying the S&P at peak earnings that do not reflect reality are bound to be disappointed.


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