The US CPI fell at an annual rate of more than 4 percent in April, the fastest rate of decrease since late 2008, when the economy was in free fall

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Ed Dolan’s Econ Blog
US CPI Falls in April at Fastest
Rate since 2008
May 16, 2013
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2. Posted May 16, 2013 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com
Consumer Price Inflation Falls Again in April
 The all-items U.S. consumer price
index fell at an annual rate of 4.35
percent in April, following a 2.14
percent rate of decrease in March
 That was the fastest rate of
decrease since late 2008, when the
economy was in free fall
 Almost all of the variability in the CPI
since the start of the year has come
from energy prices, especially the
price of gasoline. Energy prices
have a weight of 9.5% in the CPI

3. Posted May 16, 2013 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com
Core Inflation Falls Below 1 Percent
 Food and energy prices are volatile
and usually account for much of the
month-to-month change in the CPI
 Their effect can be removed by taking
food and energy out of the CPI. The
result is called the core inflation rate.
 The annualized core inflation rate for
March was just 0.6 percent

4. Posted May 16, 2013 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com
Trimmed Mean Inflation Rises Slightly
 Another way to remove volatility is
the 16% trimmed mean CPI
published by the Federal Reserve
Bank of Cleveland. It removes the
8% of prices that increase most and
the 8% that increase least in each
month (or decrease most), whatever
they are
 The 16 percent trimmed mean CPI
rose slightly faster in April than in
March, but the its annual rate of
increase remained below 1 percent

5. Posted May 16, 2013 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com
Which Measure is Best?
 The CPI for all items gives the most
accurate measure of current
changes in the cost of living
 Economists at the Fed look closely
at the core and trimmed mean CPIs,
and at other inflation indicators
derived from the GDP accounts, to
judge the effect of monetary policy
on underlying inflationary trends

6. Posted May 16, 2013 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com
Inflation Expectations Fall Slightly and Remain “Well Anchored”
 In early December, the Fed
announced that it would keep interest
rates low until the unemployment rate
fell to 6.5 percent (it is now 7.5
percent) and as long as inflation
expectations remained “well
anchored,” that is, below 2 ½ percent
for a two-year time horizon and below
2 percent for longer horizons.
 Both 5- and 10-year inflation
expectations fell slightly in April and
remain “well anchored,” near their all-
time lows

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