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The many flavors of inflation


Inflation is the rate of growth of prices. But which prices? It all depends. Above, we have four popular measures of inflation for different slices of the economy. The consumer price index (CPI) looks at a typical U.S. consumer’s basket of goods and evaluates its price over time. The producer price index (PPI) looks at the cost of inputs into the production process. The GDP deflator considers all goods that are part of GDP, which excludes imports and includes exports (the opposite of CPI and PPI). Finally, the personal consumption expenditures (PCE) price index uses a continuously changing basket of goods that is the basis for the private consumption component of GDP. The graph shows similar trends for these series over the past 10 years, except that the PPI is much more volatile. Use the slider to look at other years, where the pattern holds.

And there’s more. Each of these inflation indicators can be broken down into more-specific versions. In FRED, you can find many subsets of data in our new release tables for CPI, PPI, GDP deflator, and PCE price index. A popular version of the CPI is the one that excludes food and energy, two highly volatile components with strong seasonal fluctuations. Some people use this version of CPI when they want to track “core inflation.” FRED recently added two new subsets of price information as well: One is an experimental dataset that calculates the CPI for those over 62 years of age, and the other is compiled by State Street and computes an index from prices posted on websites. The graph below contains these three price indexes, plus the CPI from the above graph. As expected, the CPI excluding food and energy is more stable. It is perhaps a surprise that inflation for website prices (the State Street index) is fluctuating so much, which could mean that goods offered online have special characteristics.

For more on inflation, take a look at these educational resources from the St. Louis Fed:

How these graphs were created: Start from a series page, modify the graph to show the units “Percent Change From Year Ago,” and then add the other series through the search feature within the form. Note that the units of these series will be automatically converted to percent change as you add them. For the bottom graph, you need to be sure to undo this conversion for the State Street index, as it is already expressed in percent change, and then apply the data transformation a*12 to this last series, as the original is a monthly inflation rate.

Suggested by Christian Zimmermann

View on FRED, series used in this post: CPIAUCSL, CPIEALL, CPILFESL, GDPDEF, PCECTPI, PPIACO, USINFL


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