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The price of a BLT

Slicing the layers of the CPI

Over the summer, FRED added 1,479 new series on average prices for a wide range of consumer items. Almost half of the new data are prices of foodstuffs, more than enough for a seven-course dinner.

But to keep it simple, let’s make a traditional BLT sandwich: bacon, lettuce, and tomato on white bread. (Today, we’ll hold the mayo.) Like most things, the price of a BLT has risen over time, which you may have noticed at the local diner or in the supermarket. Let’s “go figure with FRED” what’s been driving up the price of this lunch staple.

The FRED graph immediately below plots the prices of all four ingredients over time. The prices of three of the ingredients rise at a fairly constant rate, which is a sign of low and stable consumer price inflation. But the fourth price (in red) is not only noticeably higher than the rest but rises at a much steeper rate. So, this ingredient has been experiencing a higher rate of price inflation.

Have you looked at the graph’s labels to figure out the culprit? It’s the bacon!

Now, if you’d like to follow our recipe and portion sizes for each ingredient, you can track the price of an actual BLT in the graph below: As of August 2019, it’s $1.53!

How these graphs were created: On the FRED homepage, under the search bar, click on “Release” (in the “Browse by…” line). Then scroll down and select “Average Price Data” then “Food.” From the table, select “Tomatoes, Field Grown, Per Lb. (453.6 Gm) in U.S. City Average,” “Bacon, Sliced, Per Lb. (453.6 Gm) in U.S. City Average,” “Lettuce, Iceberg, Per Lb. (453.6 Gm) in U.S. City Average,” and “Bread, White, Pan, Per Lb. (453.6 Gm) in U.S. City Average.” Click on “Add to Graph.” For the second graph, start with the first and use the “Edit Graph” menu to apply a formula to adjust for the weight of the items in your sandwich. (The prices are all given in pounds, so we divide by 16 to get ounces and then multiply by the number of ounces we prefer: 2 oz. of tomatoes, 3 oz. of bacon, 1.3 oz. of lettuce, and 2 oz. of bread.) To stack all the individual prices, use the “Format” tab to select graph type “Area and Stacking: Normal.”

Suggested by Diego Mendez-Carbajo and Maria Arias.

View on FRED, series used in this post: APU0000702111, APU0000704111, APU0000712211, APU0000712311

How to calculate the term premium

Measuring Treasuries to track yield curve inversions

The term premium is the amount by which the yield on a long-term bond is greater than the yield on shorter-term bonds. This premium reflects the amount investors expect to be compensated for lending for longer periods. Because U.S. Treasuries come in a variety of maturities, we can take the differences between the various yields to measure the term premium. Above is a FRED graph with the 10-year Treasury yield less the 2-year Treasury yield and less the 3-month Treasury yield. The 10-year yield is often greater than the 2-year or 3-month yields, usually with a drop preceding recessions. A drop into negative territory, when the 10-year yield is lower than the 2-year or 3-month yields, is often called a “yield curve inversion.” (See, for example, this Economic Synopses essay.)

With FRED’s international data, we can repeat this exercise for other countries. For instance, we can measure the term premium in the United Kingdom by comparing yields on 10-year U.K. government bonds and 3-month U.K. Treasury securities. We see a similar trend, with an increase in the term premium during and after recessions and a fall in the term premium before recessions.

How these graphs were created: For the first graph, search for and select “10-Year Treasury Constant Maturity Rate” and click “Add to Graph.” From the “Edit Graph” panel, use the “Customize data” tool to search for and add “2-Year Treasury Constant Maturity Rate” and then enter a-b in the “Formula” box. Repeat this with “3-Month Treasury Constant Maturity Rate.” For the second graph, repeat the steps above but instead search for “10-Year (Medium-Term) government bond in the United Kingdom.” With the “Customize data” tool, search for and add “3-Month Treasury United Kingdom” and enter a-b in the “Formula” box.

Suggested by Mahdi Ebsim and Julian Kozlowski.

View on FRED, series used in this post: DGS10, DGS2, DGS3MO, IR3TTS01GBM156N, MTGB10UKM

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