Data for the Classroom from
Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/US CPI Inflation Near Zero in June. Deflation Risk Edges Up Posted July 17, 2012 Terms of Use: These slides are made available under Creative Commons License Attribution— Share Alike 3.0 . You are free to use these slides as a resource for your economics classes together with whatever textbook you are using. If you like the slides, you may also want to take a look at my textbook, Introduction to Economics, from BVT Publishers.

US CPI Inflation Near Zero
in June The headline inflation rate in the latest BLS inflation report was zero for June Using unrounded data and stating the monthly change at an annual rate, seasonally adjusted inflation was 0.48% Without seasonal adjustment, the CPI decreased at an annual rate of about 1.2 percent in June, the same as in May Posted July 17, 2012 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

Weak Energy Prices Hold Core
Inflation Down 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 monthly change in core inflation was 0.2% in June (a 2.43% annual rate), the same as in May Seasonally adjusted energy prices fell by 1.4 percent in June, and gasoline by more than 2 percent. Food prices rose by .2 percent in June Posted July 17, 2012 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

Trimmed Mean Inflation Also Remains
Low 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, whatever they are The 16 percent trimmed mean CPI increased at an annual rate of 1.9 percent in June Posted July 17, 2012 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 to judge the effect of monetary policy on underlying inflationary trends The Fed considers inflation of about 2 percent to be consistent with prudent monetary policy Posted July 17, 2012 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

The Longer Term Trend To
see longer term trends in inflation, it is useful to look at year- on-year changes, which compare each month’s price level with that of the same month in the year before All y-o-y measures of inflation rates slowed during the global recession, then rose again for most of 2011. The three measures shown here have moved steadily downward in 2012. All are close to or below the Fed’s targets Posted July 17, 2012 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

Probability of Deflation Rises The
Atlanta Fed publishes a weekly estimate of the probability of deflation over a 5-year time horizon The estimate is based on prices of Treasury Inflation-Protected Securities The risk of deflation tends to rise as inflation slows and as TIPS traders begin to think the Fed will undershoot its inflation targets The latest estimate shows a 17 percent probability that the CPI in April 2017 will be lower than the CPI in April 2012 Posted July 17, 2012 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com