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Are some prices in the CPI more forward looking than others? We think so

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  • Michael F. Bryan
  • Brent Meyer

Abstract

Some of the items that make up the Consumer Price Index change prices frequently, while others are slow to change. We explore whether these two sets of prices - sticky and flexible - provide insight on different aspects of the inflation process. We find that sticky prices appear to incorporate expectations about future inflation to a greater degree than prices that change on a frequent basis, while flexible prices respond more powerfully to economic conditions?economic slack. Importantly, our sticky-price measure seems to contain a component of inflation expectations, and that component may be useful when trying to gauge where inflation is heading.

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File URL: http://www.clevelandfed.org/Research/commentary/2010/2010-2.pdf
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Bibliographic Info

Article provided by Federal Reserve Bank of Cleveland in its journal Economic Commentary.

Volume (Year): (2010)
Issue (Month): May ()
Pages:

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Handle: RePEc:fip:fedcec:y:2010:i:may19:n:2010-2

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Keywords: Consumer price indexes ; Inflation (Finance);

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Cited by:
  1. James Bullard, 2011. "Measuring inflation: the core is rotten," Review, Federal Reserve Bank of St. Louis, issue July, pages 223-234.
  2. Richard Peach & Robert Rich & M. Henry Linder, 2013. "The parts are more than the whole: separating goods and services to predict core inflation," Current Issues in Economics and Finance, Federal Reserve Bank of New York, Federal Reserve Bank of New York, vol. 19(Aug).
  3. Choi, Chi-Young & O'Sullivan, Róisín, 2013. "Heterogeneous response of disaggregate inflation to monetary policy regime change: The role of price stickiness," Journal of Economic Dynamics and Control, Elsevier, vol. 37(9), pages 1814-1832.
  4. Macallan, Clare & Taylor, Tim & O'Grady, Tom, 2011. "Assessing the risk to inflation from inflation expectations," Bank of England Quarterly Bulletin, Bank of England, vol. 51(2), pages 100-110.
  5. Fröhling, Annette & Lommatzsch, Kirsten, 2011. "Output sensitivity of inflation in the euro area: Indirect evidence from disaggregated consumer prices," Discussion Paper Series 1: Economic Studies 2011,25, Deutsche Bundesbank, Research Centre.
  6. Harimohan, Rashmi, 2012. "How has the risk to inflation from inflation expectations evolved?," Bank of England Quarterly Bulletin, Bank of England, vol. 52(2), pages 114-123.
  7. Millard, Stephen & O'Grady, Tom, 2012. "What do sticky and flexible prices tell us?," Bank of England working papers 457, Bank of England.
  8. Alan K. Detmeister, 2011. "The usefulness of core PCE inflation measures," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2011-56, Board of Governors of the Federal Reserve System (U.S.).
  9. Ádám Reiff & Judit Várhegyi, 2013. "Sticky Price Inflation Index: An Alternative Core Inflation Measure," MNB Working Papers, Magyar Nemzeti Bank (the central bank of Hungary) 2013/2, Magyar Nemzeti Bank (the central bank of Hungary).

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