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Inflation around the world

Inflation is a concern for many these days, so the FRED Blog looks at what we know and can show about this economic phenomenon. Inflation has complex roots and is treated with policies that have effects with notoriously long and variable lags. The complexity lies in the fact that inflation can have many different causes. This current bout of inflation has been attributed to excess aggregate demand due to pandemic payouts to households, low interest rates, increasing public deficits, supply chain issues, the invasion of Ukraine, and more.

None of these causes is unique to a particular country, and all seem to apply to a wide range of industrialized countries. So, it should be no surprise that the FRED graph above depicts a similar pattern for inflation across the 7 industrialized countries selected. (We cheated a little by excluding Japan, which has had very low inflation, if not deflation, for much of the period.)

This similarity makes monetary policy a bit more difficult: If there is so much co-movement, is it because all economies face the same inflationary shocks or is it because inflation is being imported and exported across countries?

We can answer such questions only in hindsight, but we can look with more detail at the past five years and how inflation has risen. Our second FRED graph shows that the U.S. was clearly the first to experience higher inflation and also has been the first to see it abating a bit. Does this mean that inflation started in the U.S. and then was exported elsewhere? That certainly cannot be the whole story, because inflation did not happen ex nihilo: As mentioned above, there are many common reasons for rising inflation. And inflation clearly doesn’t have only a monetary origin: Note the stark differences within the euro area, which all falls under the monetary policy of the ECB: Yet, France runs at least 2% below the others and more than 4% below Spain. There is simply no simple story to inflation.

How these graphs were created: Search FRED for US CPI, specifically the OECD series in growth rates, as we want to use the same source for all series. Click “Edit Graph,” open the “Add Line” tab, and successively add the other series. You have the first graph. For the second, take the first and restrict the sample period to the past five years.

Suggested by Christian Zimmermann.

Inflation and the world price of poultry

The price of domesticated birds has soared high

Serving poultry at the global Thanksgiving dinner table is 20% more expensive than a year ago. Global food prices in general peaked in the middle of 2022. They’re coming down now, but they’re still 3% higher than they were a year ago.

The FRED graph above shows data on the global price of poultry (blue line) and food in general (red line). Notice that the source of the data, the International Monetary Fund, serves up each data series in a different unit: U.S. cents per pound of poultry and an index with a value of 100 in 2016 for the price of food overall.

Because poultry prices are nested in the broad category of food prices, it should come as little surprise that both price series took flight at the same time in the late part of 2020. However, the global prices of other types of food, such as shrimp, are now lower than a year ago and are contributing to the decline of the composite food price index.

That composition effect is at play at the Thanksgiving dinner table for an average urban consumer in the U.S. According to the Bureau of Labor Statistics, those serving poultry alongside meats, fish, and eggs are paying 8% more than last year.

Lastly, if you care for tofurkey, notice that although the global price of soybeans has risen alongside the price of poultry, a soybean-based dinner with the same amount of calories provided by turkey is 41% cheaper.

How this graph was created: In FRED, search for and select “Global price of Poultry.” Click “Edit Graph” at the top right corner and navigate to the “Add Line” tab. Search for “Global price of Food index” and click “Add data series.” Gobble, gobble.

Suggested by Diego Mendez-Carbajo.

Astonishingly different inflation across goods categories

Not all prices have increased in the same way during our current burst of inflation. This obviously holds true for specific, individual prices, but there are also marked differences when you look across broad categories.

The FRED graph above shows the three major categories of durable goods, nondurable goods, and services.

  • Durable goods (in red) led the charge back in mid 2020 and have had the highest percent changes of the three categories so far. Now this price inflation is strongly declining. A large component here are used and new cars.
  • Nondurable goods (in blue) have had more inertia, but this price inflation has started declining as well.
  • Services (in green) have flown under the radar, but these prices are showing no sign of decreasing and may soon be the category with the highest inflation rate.

This phenomenon isn’t new. The second FRED graph expands the series over the entire available period, back to 1956. If you look at the level of the CPI instead of its growth rate, you notice that the CPI for the three categories has widely diverged since the mid 1980s. Durable goods have lower inflation, which is thought to be the result of tremendous technological advances, particularly in information technology. Services benefit the least from productivity enhancement, as they have a much larger share of labor inputs, so these prices always increase more than prices for goods.

How these graphs were created: In FRED, search for and select “CPI non-durables.” Click “Edit Graph,” open the “Add Line” tab, and search for and select “CPI durables” and then “CPI services.” Restrict the sample period to start in January 2020. Then change the units to “Percentage change from previous year” and apply this to all lines: “Copy to all.” For the second graph, use the first graph but show the full series (back to 1956) and change units to “Index 1982-1984 = 100” and select “Copy to all.”

Suggested by Christian Zimmermann.

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