Understanding Recent Inflation Trends
Dr. Abdullah Al Bahrani
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The latest Consumer Price Index (CPI) numbers were released this past Wednesday, giving us new insights into our current economic situation. Let's break down what these numbers mean and why they're important.
What is the CPI?
The Consumer Price Index measures the cost of living. It's like a shopping basket filled with goods and services that a typical household buys. By tracking how the price of this basket changes over time, we can measure inflation.
Recent CPI Trends
The graph below reflects the price changes we have experienced since January 2020:
The August CPI was measured at 314.121. But what does this number mean in practical terms?
Calculating Inflation
We're more concerned with the index's rate of change, often measured as the CPI's year-on-year change. Here's how we calculate it:
To calculate the 12-month inflation rate:
This puts the 12-month inflation rate at 2.59%, down 0.4 percentage points from the July level and the lowest since February 2021.
All Items vs Core Inflation
While this was a good report overall, core inflation was a bit higher at 3.2%. This raised concerns that the Federal Reserve might not be as aggressive with its rate cuts when it meets later this month.
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So, what's the difference between these two inflation numbers?
What Does It Mean When Core is Higher?
When core inflation (3.2%) is higher than headline inflation (2.59%), it indicates deflationary pressure in volatile sectors:
This situation gives us important insights into different sectors of the economy and helps policymakers make informed decisions.
PCE vs CPI
The Federal Reserve prefers to measure inflation using the personal consumption expenditures price index. Marketplace Radio recently had a great segment on this topic. Listen to the segment here. I found it helpful and assigned it to my students.
The Language of Economics
To be a fully informed citizen in this world, you need a good understanding of economics and how the macroeconomy impacts your personal life. Economics is personal, and I hope that through this newsletter, you've learned more about the economy and gained the confidence to navigate the often complex economic discussions in the news. Everyone expects you to understand it, but very few have the opportunity to take a class on this subject. That's where we come in!
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Thank you for joining this learning adventure. I look forward to hearing your stories and continuing our economics discussion together.
Sincerely,
Dr. A
Manager
5 个月Very insightful overview. Thanks for sharing!
Marketing Specialist at Solvaria | Digital Marketing & Analytics | Driving connection with data-driven storytelling
5 个月Your breakdown of CPI reminds me of sitting in one of your classes, in the best way! The clearly explained calculation helps ground the real-world insights without diluting the information. Thanks for sharing!