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Posts tagged with: "PCEPI"

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The Phillips curve after the Great Recession

Posted on November 2, 2015

During the 1960s, some economists made the case that the Phillips curve—a negative relationship between the inflation rate and the unemployment rate—represented a tradeoff for policymakers. So, according to this view, a central bank could achieve permanently lower unemployment by accepting higher inflation. However, beginning with Milton Friedman in 1968, other economists made the case that the Phillips curve tradeoff was not permanent. According to this alternative view, the Phillips curve correlation might be observed in the data over some periods of time, depending on the types of shocks hitting the economy, but a central bank could not exploit a Phillips curve tradeoff to create permanently low unemployment. Then, beginning in the 1990s, New Keynesian economists propelled a resurgence of interest in the Phillips curve, which plays a prominent role in New Keynesian theory.

The graph shows the Phillips curve we observe in the data following the end of the Great Recession. The data run from June 2009 to August 2015, and the line connects the points in the scatter plot in temporal sequence running roughly from right to left in the graph. Over this period, the Phillips curve slopes the wrong way—a higher unemployment rate is associated with a higher inflation rate. Even if people may be waiting for a lower unemployment rate to produce higher inflation, this may never happen.

How this graph was created: Search the categories in FRED: Under the “Prices” heading, select “consumer price indexes” then “personal consumption expenditures: chain-type price index, monthly.” Set the sample as 2009-06-01 to 2015-08-01. Under the “Edit Data Series” option, change “Units” to “Percent Change from Year Ago.” This will yield a graph of the Fed’s chosen measure of the inflation rate over the post-recession period. Next, choose “Add Data Series” and search for and select “civilian unemployment rate, monthly, seasonally adjusted.” Now, edit this series by selecting the “Edit Data Series 2” option and setting the y-axis position to the left; select the “Graph Settings” option and set graph type to “Scatter.” Then choose “Edit Data Series 2” and set units to “Percent.” Finally, choose “Edit Data Series 1” and set line width to “1.”

Suggested by Steve Williamson.

View on FRED, series used in this post: PCEPI, UNRATE

Which measures of inflation are relevant for policy?

Posted on October 1, 2015

The Federal Reserve has set a 2% inflation target. Does it meet that target? It depends on which inflation rate you consider. FRED offers many different series for the U.S. that reveal different views of inflation because they pertain to different groups of goods and services. The graph above shows eight series that receive a lot of attention in the context of policy: Three are above and five are below that 2% target. How are they different? Some look only at consumption expenses or production costs. Some include overall economic activity. Some exclude energy and food, price categories thought to be volatile and thus capable of clouding the picture of underlying inflation. (For example, removing the currently low prices of oil and its derivatives clearly leads to higher inflation numbers.) Some focus on prices that move slowly, which are thought to be good indicators of trend inflation. And one index considers only the median in the distribution of price changes. You can consider even more series in FRED. The point is that there’s a wide spread across those inflation rates, and determining which is the most relevant isn’t easy.

How this graph was created: One of the many way to graph these series is to search for “price” and restrict the choices with tags such as “nation,” “usa,” and “sa” (seasonally adjusted). These eight are likely to be at the top of these search results. Select the series you want and click the “Add to graph” button. Some series are indexes and others are inflation rates, so modify the units to show “Percentage change from year ago” for the series in index form. Finally, to add the black horizontal line at 2%, open the “Add series” panel and select “Trend series” from the pulldown menu. Once it’s added, modify it by choosing 2 for the initial and final values and change the color to black. Oh… We also removed the axis label because it became unwieldy with eight depicted series.

Suggested by Christian Zimmermann

View on FRED, series used in this post: A191RI1Q225SBEA, CPIAUCSL, CPILFESL, CRESTKCPIXSLTRM159SFRBATL, MEDCPIM158SFRBCLE, PCEPI, PCEPILFE, STICKCPIM159SFRBATL

Distance to inflation target

Posted on May 5, 2014

In a recent St. Louis Fed On the Economy blog post, I plotted the distance from the inflation target for 9 advanced economies in January 2014. Instead of looking at a cross-section of countries, we could look at the time series for the United States or any other economy for which we know the target and have a time series in FRED. Several countries set their inflation target at or close to 2% as measured by the year-on-year growth of the consumer price index (a Laspeyres index). However, the U.S. Federal Reserve uses the personal consumption expenditures price index (a Fisher Ideal quantity index). To understand the difference between the two, see this BLS paper: “An Examination of the Difference Between the CPI and the PCE Deflator.”

For a recent take on the advantages of using one measure over the other, see St. Louis Fed President Jim Bullard’s article in the Regional Economist, “CPI vs. PCE Inflation: Choosing a Standard Measure.”

In the graph, I plot the difference between the actual inflation rate (measured in either CPI or PCE) and the inflation target in the United States as discussed in the “Statement on Longer-Run Goals and Monetary Policy Strategy.”

This target is typically considered a medium-run objective, so it is normal to observe short-lived deviations from the target. However, inflation in the United States has been below target for quite some time, and it is an open question when it will return closer to the 2% target (close to the zero line in the graph).

How this graph was created: First, load the two series. Then for each series, select “Percent change from year ago” as the unit of measure and use the “Create your own data transformation feature” and enter the formula “a-2.” Finally, in the graph settings, select type “Area.”

Suggested by Silvio Contessi.

View on FRED, series used in this post: CPIAUCSL, PCEPI


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