Magazine article Economic Trends

Prices Are Falling, Prices Are Falling!

Magazine article Economic Trends

Prices Are Falling, Prices Are Falling!

Article excerpt

March Price Statistics

                  Percent change, last

                      1mo.  3mo.  6mo.  12mo.  5yr. (a)  2009 average
                      (a)   (a)   (a)

Consumer Price Index

  All items           0.8   0.9   1.7   2.3      2.4        2.8

  Less food and       0.5  -0.2   0.6   1.1      2.0        1.8

  Median (b)         -0.2   0.0   0.4   0.6      2.4        1.2

  16% trimmed mean    0.3   0.6   0.9   1.0      2.3        1.3

(a.) Annualized.

(b.) Calculated by the Federal Reserve Bank of Cleveland.

Sources: U.S. Department of Labor, Bureau of Labor Statistics; and
Federal Reserve Bank of Cleveland.


Given the recent low readings on inflation, it wouldn't be too surprising to hear warnings of an impending deflation. But is there cause for alarm? A quick examination of the incoming data may help to discern whether it's time to panic.

The Consumer Price Index (CPI) ticked up a slight 0.8 percent (annualized rate) in March, largely driven by a spike in fresh fruits and vegetables prices (up 72 percent at an annualized rate). Measures of underlying inflation been relatively subdued lately. The core CPI (excludes food and energy prices) was virtually unchanged during the month. In fact, the core CPI hasn't moved much recently; the index is actually down 0.2 percent over the past three months and up only 0.6 percent over the past six months. The measures of underlying inflation produced by the Federal Reserve Bank of Cleveland, the median CPI and 16 percent trimmed-mean CPI, have behaved similarly. The median CPI was virtually unchanged in March, slipping down 0.2 percent after a 0.3 percent decline in February, and has been flat over the past three months. The 16 percent trimmed-mean CPI increased 0.3 percent in March, somewhat lower than its 6-month growth rate of 0.9 percent.


Over a longer time horizon (the past 12 months), the headline CPI is up 2.3 percent, though this largely reflects the path of energy prices. On the other hand, measures of underlying inflation have been slowing. The core CPI is up just 1.1 percent over the period, and the 16 percent trimmed-mean measure has edged up 1.0 percent. Perhaps more striking is that the 12-month growth rate in the median CPI has fallen from a recent high of 3.2 percent in September of 2008 to an all-time low of 0.6 percent (the series goes back to 1968). …

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