Magazine article Economic Trends

What's Weighing on Inflation?

Magazine article Economic Trends

What's Weighing on Inflation?

Article excerpt

07.22.13

Various indicators show that CPI inflation has declined over the past year or so. Although the Bureau of Labor Statistics' (BLS) most recent release of the Consumer Price Index (CPI) shows an annualized increase of 5.9 percent for the month of June, CPI inflation has been very low for many months of the year. As a result, measured on a 12-month basis, CPI inflation continued to remain below 2 percent, at 1.8 percent. The "core" CPI, which covers goods and services excluding food and energy, rose at an annual rate of 2.0 percent in June, putting the 12-month rate at 1.6 percent. Measured on a 12-month basis, core CPI inflation has slowed from 2.2 percent in June 2012 to 1.9 percent in December 2012 to its current rate of 1.6 percent.

The current low rates of inflation in the CPI and core CPI are partly due to low rates of inflation in the prices of goods (see "Recent Trends in Various CPI-Based Inflation Measures" and "Behind Recent Disinflation: 2010 Redux?"). Over the past year or so, inflation rates for both nondurable and durable goods captured in the CPI have slowed, reaching levels that, today, are very low. In June, the 12-month CPI inflation rate for durable goods was -0.6 percent (meaning that the level of durables prices fell 0.6 percent), and the CPI inflation rate for nondurable goods was 1.3 percent.

Goods represent about 40 percent of the total CPI consumer basket, with food and beverages comprising 15 percent of the entire basket and nondurables and durables making up the other 25 percent (as measured by relative importances in December 2012). …

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