IDEAS home Printed from https://ideas.repec.org/a/fip/fedaer/y2004iq1p39-51nv.89no.1.html
   My bibliography  Save this article

Decomposing inflation

Author

Listed:

Abstract

As U.S. core inflation measures have declined in recent years, analysts have renewed their efforts to understand inflation dynamics. A common approach to this issue is to make inferences about how price changes of major components affect the aggregate inflation rate. This article takes a more rigorous approach, calculating and plotting the precise contributions of major consumer expenditure categories to core inflation measures over time. ; This technique has distinct advantages. It highlights the underlying trends in inflation, enabling analysts to make more informed inferences about the near-term direction of inflation. It also allows analysts to distinguish broad-based changes in inflation from changes due to relative price movements of a few components. ; The analysis focuses on the core components of the consumer price index (CPI) and the personal consumption expenditures price index (PCEPI). Over the long term, the authors note, the composition of core services inflation has remained relatively stable while the composition of core goods inflation has changed dramatically. Over the 2002?03 period, movements in core inflation measures resulted mainly from significant relative price changes of two components that were persistent enough to alter the path of core inflation for a sustained period, the authors conclude. ; The results of this study highlight the importance of gauging the impact of relative changes in a low-inflation environment and suggest that recent concern about overall price deflation was perhaps overstated.

Suggested Citation

  • Andrew Bauer & Nicholas Haltom & William B. Peterman, 2004. "Decomposing inflation," Economic Review, Federal Reserve Bank of Atlanta, vol. 89(Q 1), pages 39-51.
  • Handle: RePEc:fip:fedaer:y:2004:i:q1:p:39-51:n:v.89no.1
    as

    Download full text from publisher

    File URL: https://www.atlantafed.org/-/media/Documents/research/publications/economic-review/2004/vol89no1_bauer-haltom-peterman.pdf
    File Function: Full Text
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Todd E. Clark, 1999. "A comparison of the CPI and the PCE price index," Economic Review, Federal Reserve Bank of Kansas City, vol. 84(Q III), pages 15-29.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Tara Sinclair & Dennis W. Jansen & Michael D. Bradley, 2009. "How Well Does "Core" CPI Capture Permanent Price Changes?," Working Papers 2010-09, The George Washington University, Institute for International Economic Policy.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Craig S. Hakkio, 2008. "PCE and CPI inflation differentials: converting inflation forecasts," Economic Review, Federal Reserve Bank of Kansas City, vol. 93(Q I), pages 51-68.
    2. Ang, Andrew & Bekaert, Geert & Wei, Min, 2007. "Do macro variables, asset markets, or surveys forecast inflation better?," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 1163-1212, May.
    3. Stefano Eusepi & Bart Hobijn & Andrea Tambalotti, 2011. "CONDI: A Cost-of-Nominal-Distortions Index," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(3), pages 53-91, July.
    4. Carré, Emmanuel, 2013. "La cible d’inflation de la Fed : continuité ou rupture ?," Revue de la Régulation - Capitalisme, institutions, pouvoirs, Association Recherche et Régulation, vol. 14.
    5. Reis, Ricardo, 2005. "A cost-of-living dynamic price index, with an application to indexing retirement accounts," CEPR Discussion Papers 5394, C.E.P.R. Discussion Papers.
    6. Christopher Kent, 2004. "Discussion of 'Inflation Measurement for Central Bankers'," RBA Annual Conference Volume (Discontinued), in: Christopher Kent & Simon Guttmann (ed.),The Future of Inflation Targeting, Reserve Bank of Australia.
    7. Demertzis, Maria & Marcellino, Massimiliano & Viegi, Nicola, 2008. "A Measure for Credibility: Tracking US Monetary Developments," CEPR Discussion Papers 7036, C.E.P.R. Discussion Papers.
    8. Fan Ding & Alexander L. Wolman, 2005. "Inflation and changing expenditure shares," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 91(Win), pages 1-20.
    9. Binner, J.M. & Tino, P. & Tepper, J. & Anderson, R. & Jones, B. & Kendall, G., 2010. "Does money matter in inflation forecasting?," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(21), pages 4793-4808.
    10. Roberto M. Billi & George A. Kahn, 2008. "What is the optimal inflation rate?," Economic Review, Federal Reserve Bank of Kansas City, vol. 93(Q II), pages 5-28.
    11. Andrew Bauer & Nicholas Haltom & William B. Peterman, 2004. "Examining contributions to core consumer inflation measures," FRB Atlanta Working Paper 2004-7, Federal Reserve Bank of Atlanta.
    12. William C. Whitesell, 2005. "An inflation goal with multiple reference measures," Finance and Economics Discussion Series 2005-62, Board of Governors of the Federal Reserve System (U.S.).
    13. Ricardo Reis, 2005. "A Dynamic Measure of Inflation," NBER Working Papers 11746, National Bureau of Economic Research, Inc.
    14. Robert W. Rich & Donald Rissmiller, 2001. "Structural change in U.S. wage determination," Staff Reports 117, Federal Reserve Bank of New York.
    15. Hanson, Michael S., 2004. "The "price puzzle" reconsidered," Journal of Monetary Economics, Elsevier, vol. 51(7), pages 1385-1413, October.
    16. David Fielding & Paul Mizen, 2008. "Evidence on the Functional Relationship between Relative Price Variability and Inflation with Implications for Monetary Policy," Economica, London School of Economics and Political Science, vol. 75(300), pages 683-699, November.

    More about this item

    Keywords

    Inflation (Finance);

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedaer:y:2004:i:q1:p:39-51:n:v.89no.1. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Meredith Rector (email available below). General contact details of provider: https://edirc.repec.org/data/frbatus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.