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
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: