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Of sticky and flexible prices

The consumer price index (CPI) is composed of many prices with wildly different characteristics. One dimension in which they can differ is how frequently they change. Everybody is aware that gasoline prices can change daily. Other prices may not even change every year, such as administrative fees. To highlight the difference between these extremes, the Federal Reserve Bank of Atlanta produces separate indices for goods that have flexible prices on the one hand and sticky prices on the other hand. The graph above clearly shows that flexible prices have a much wilder ride. The sticky price index is informative even if doesn’t move much, though. Indeed, it can reflect longer trends in inflation, and these are the ones everyone cares more about.

How this graph was created: Go to the Sticky price CPI source, select the sticky and flexible consumer price indices (percent change from year ago), and add them to the graph.

Suggested by Christian Zimmermann.

View on FRED, series used in this post: FLEXCPIM159SFRBATL, STICKCPIM159SFRBATL

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