Magazine article Economic Trends

Inflation and Prices

Magazine article Economic Trends

Inflation and Prices

Article excerpt

The Consumer Price Index rose 6.3% in August, following a 6.4% rise in July. Energy prices surged ahead for the second consecutive month, jumping nearly 80% (annualized rate), but growth in the core retail price measures was much more subdued. The core CPI rose a modest 1.2%, substantially below its 12-month trend of 2.1%, while the median CPI rose 2.1%, also below its 12-month trend of 2.3%.

Meanwhile, the 12-month growth rate of CPI-measured inflation continued to rise, increasing from 3.2% to 3.6% during the month. However, longer-term inflation trends in the core retail price measures were relatively stable. The 12-month growth rates in the core CPI and median CPI held steady at 2.1% and 2.3%, respectively. The 12-month growth rate in the 16% trimmed-mean CPI increased 0.2 percentage point to 2.4%. After trending upward throughout 2004, growth in the core retail price measures has generally remained steady over the past year or so, fluctuating between 2.0% and 2.5%. Inflation stability is also apparent in the major core components: Growth in core services prices has trended between 2.7% and 3.0% for over a year, and growth in core goods prices, after accelerating throughout 2004, has fluctuated in a narrow range, between 0.4% and 0.7%, since the beginning of 2005.

This relatively modest growth in the core retail price measures has continued, despite the dramatic rise in energy prices. Crude oil prices, which have nearly doubled in 2005 so far, are expected to remain high for at least the next year. Household inflation expectations have been shaped by this dramatic and persistent rise in energy prices and by the interruptions in energy supply and distribution caused by the devastating Gulf Coast hurricanes. In September, households expected that inflation over the next year would reach 5. …

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