Courtesy of Doug Short.
Note from dshort: I’ve update the accompanying charts with the latest Personal Consumption Expenditures price index from the Bureau of Economic Analysis. The annualized rate of change is calculated to two decimal places for more precision in the side-by-side comparison.
As the charts below illustrate, core PCE is below the Federal Reserve’s 2% target, generally referenced as the 1.75%-2% range, but core CPI is bumping into the target zone.
The October 2010 core CPI of 0.61% was the lowest ever recorded, and two months later the core PCE of 0.93% was an all-time low. However we have seen a significant divergence between the headline and core numbers for both indicators, especially the CPI. Food prices are on the rise, but it is the energy component — gasoline prices in particular — that had been driving the spread wider until the recent partial retracement in gasoline prices.
The Bureau of Labor Statistic’s Consumer Price Index and The Bureau of Economic Analysis’s monthly Personal Income and Outlays report are the main indicators for price trends in the U.S. The chart below is an overlay of core CPI and core PCE since 2000.
Here is a long-term perspective from the actual beginnings of the two series.
For some technical data explaining the differences between the two, see this comparison article from the BEA.
In the real world we can’t exclude food and energy from our monthly expenses. But the extreme volatility of these two expense categories, especially energy, often obscures the underlying trend, which is the focus of the chart above. For evidence of the volatility, see this overlay of headline and core CPI and this one of headline and core PCE.
Hostility Toward Government Inflation Analysis
One the other hand, the volatile price of gasoline explains why so many people are angered by the exclusion of food and energy from core measures of inflation. The chart of gasoline prices below is based on the latest weekly data from the Energy Information Administration. The good news is that prices have been fallen somewhat over during the summer driving season.
I’ll update these charts shortly after the next Consumer Price Index is released on September 15.
