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The Layers of Inflation Persistence

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Abstract

In a recent post, we introduced the Multivariate Core Trend (MTC), a measure of inflation persistence in the core sectors of the personal consumption expenditure (PCE) price index. With data up to February 2022, we used the MCT to interpret the nature of post-pandemic price spikes, arguing that inflation dynamics were dominated by a persistent component largely common across sectors, which we estimated at around 5 percent. Indeed, over the year, inflation proved to be persistent and broad based, and core PCE inflation is likely to end 2022 near 5 percent. So, what is the MCT telling us today? In this post, we extend our analysis to data through November 2022 and detect signs of a decline in the persistent component of inflation in recent data. We then dissect the layers of inflation persistence to fully understand that decline.

Suggested Citation

  • Marek Jarocinski & Martín Almuzara & Argia M. Sbordone, 2023. "The Layers of Inflation Persistence," Liberty Street Economics 20230105, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:95435
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    More about this item

    Keywords

    inflation persistence; housing; supply chain;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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