Magazine article Economic Trends

Infaltion and Prices

Magazine article Economic Trends

Infaltion and Prices

Article excerpt

Growth in retail prices was subdued in June. After falling 0.6% in May, the Consumer Price Index remained unchanged. There were modest increases in the core CPI which excludes volatile Food and energy prices (1.2%). and the median CPI which controls for volatile monthly price changes by considering only the center of the monthly price-change distribution (2.1%).

Longer-term inflation trends declined slightly during the month The CPI's 12-month growth rate fell from 2.8% to 2.5%. Declines in the 12-month growth rates of the core CPI measures were likewise moderate: The core CPI, median CPI, and 16% trimmed-mean CPI all declined 0.1 to 0.2 percentage points (pp) between May and June. Nevertheless, growth in the retail price measures has increased since late 2003, with the core CPI's 12-month growth rate rising about 1 pp since January 2004.

Patterns in the Personal Consumption Expenditure (PCE) price index and the core ICE price Index, which measure an alternative consumer market basket, largely mirror trends in CPI price measures. While the core PCE declined from 2.3% in November 2004 to 1.9% in June 2005, it remains 1 1/4 pp above its fate-2003 growth rate. One aggregating factor in the run-up of overall retail prices has been the rather dramatic rise in oil prices, which have nearly doubled since early 2004. However, recent readings of futures prices suggest that the price of a barrel of oil may settle at around $63.

In its semiannual Monetary Policy Report to Congress, the Board Of Governors of the Federal Reserve System reported recent economic projections by the Federal Open Market Committee (and nonvoting Federal Reserve Bank presidents), They showed inflation or declining slightly: The central tendency of the group's projection for the core PCE price index in 2005 and 2006 is between 1 3/4% and 2% on a fourth-quarter over fourth-quarter basis, about 1/4 pp above its projection last February. …

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