Certainly not in the core measures. Although the headline number reported by the Bureau of Labor Statistics today was pretty ugly -- the Consumer Price Index advanced at a 6.3 percent annual annualized rate in August -- the core measures are still holding steady. That has been true for the median CPI all year, and it has been true for the CPI excluding food and energy components for the past six months. Here's the summary, from the Federal Reserve Bank of Cleveland:
Over the last 12 months, the median CPI rose 2.3%, the CPI 3.6%, and the CPI less food and energy 2.1%.
| Percent Change From Previous Month | ||||||
| Mar. | Apr. | May | June | July | Aug. | |
| CPI | 0.6 | 0.5 | -0.1 | 0.0 | 0.5 | 0.5 |
| CPI less food & energy | 0.4 | 0.0 | 0.1 | 0.1 | 0.1 | 0.1 |
| MEDIAN CPI | 0.2 | 0.2 | 0.3 | 0.2 | 0.2 | 0.2 |
| Percent Change, Last 12 Months | ||||||
| Mar. | Apr. | May | June | July | Aug. | |
| CPI | 3.1 | 3.5 | 2.8 | 2.5 | 3.2 | 3.6 |
| CPI less food & energy | 2.3 | 2.2 | 2.2 | 2.0 | 2.1 | 2.1 |
| MEDIAN CPI* | 2.4 | 2.3 | 2.4 | 2.3 | 2.3 | 2.3 |
The large discrepancy between the core measures and the full CPI measure of inflation reflects, of course, the impact of last month's acceleration in energy-related prices. Given the persistent gap between overall CPI inflation and the rate of change in the core measures, it may be helpful to remember why we tend to focus on the latter. For monetary policy purposes, what we are interested in is the drift in average prices over time. For that reason, a situation in which all prices rise by 6.5% would seem a lot more worrisome than a situation in which a few prices increase a lot -- for identifiable reasons that will presumably not repeat themselves indefinitely.
If the core inflation measures didn't convince you that the second scenario is the one we are confronting now, a look at the distribution of price changes in the August data should do it:
That picture, courtesy of Mike Bryan, makes the point. When weighted by their expenditure shares in the market basket used to construct the CPI, the majority of price increases were far less than the average increase. Over 50 percent of the weighted price gains were less than 3 percent (when annualized). Nearly twenty percent actually fell.
You might say that this is all fine and good, but you happen to actually purchase the average market basket, and the price of that went up by a full 1/2 percent in one month. In other words, your cost of living rose, and stripping out those prices that increased a lot does not make you feel one bit better.
Hey -- that's a good point, and one that moves us in the direction of discussing what monetary policy ought to be trying to accomplish. Should we be content with managing the rate of inflation going forward? If so, the core measures seem exactly the thing to be focused on, as they likely provide a more accurate picture of the inflation trend. But there is no guarantee that such a let-bygones-be-bygones approach will undo the effects of large one-off increases in some price or subset of prices, even in the medium term. In other words, there is no guarantee that focusing on core inflation will stabilize the cost-of-living over horizons that people may care about.
Just something to think about.
UPDATE: This piece at Econbrowser is a must-read complement to this post. General Glut appears to be on the same page,