The Atlanta Fed's macroblog provides commentary and analysis on economic topics including monetary policy, macroeconomic developments, inflation, labor economics, and financial issues.
- BLS Handbook of Methods
- Bureau of Economic Analysis
- Bureau of Labor Statistics
- Congressional Budget Office
- Economic Data - FRED® II, St. Louis Fed
- Office of Management and Budget
- Statistics: Releases and Historical Data, Board of Governors
- U.S. Census Bureau Economic Programs
- White House Economic Statistics Briefing Room
August 02, 2005
New Core Inflation Measure From The Dallas Fed
Coincident with the latest news on consumer inflation (it was tame in June), the Dallas Fed today rolled out its new and improved measure of core inflation based on the price index for personal consumption expenditures. The motivation for this new measure, which is similar in spirit to the Cleveland Fed's median CPI statistic, is nicely articulated in a background working paper by Dallas economist Jim Dolmas:
Measures of inflation that exclude food and energy prices are probably the most well-known estimators of core inflation. In fact, the "excluding food & energy" measures (XFE for short) are often spoken of as if they are synonymous with core inflation. Properly speaking, though, they represent just one of many potential core measures...
... in any given month, excluding only food and energy items still leaves many volatile items in the price index... excluding all food and energy items may throw out some useful information.
What the Dallas folks have proposed is a "trimmed mean" estimator. Here, in a nutshell, is why:
In a study focusing on the CPI and the PPI, Michael Bryan, Stephen Cecchetti and Rodney Wiggins make a statistical case for the use of trimmed means as a method for estimating core inflation.That case relies on the fact that trimmed means can be more efficient estimators of a distribution’s location, as compared to the sample mean, when the distribution is characterized by heavy tails. Intuitively, samples drawn from a heavy-tailed distribution will contain relatively large numbers of extreme values. As a result, the sample means, which are sensitive to outliers, will have a high variance. Trimming some fraction of those extreme observations produces a less volatile estimator, a fact which Bryan, Cecchetti and Wiggins illustrate…
(You can regularly find a picture of the trimmed mean calculated from the Consumer Price Index in the Cleveland Fed's Economic Trends publication.)
Here's the bad news from the trimmed-mean PCE calculations:
Compared to the story told by the usual "excluding food & energy" measure, the trimmed mean PCE tells us that the lows reached in 2003 weren't quite as low and that the highs reached in mid-2004 were really a bit higher. On a 12-month basis, the new measure suggests that core PCE inflation is currently about 1/2 a percentage point higher than what is being indicated by the "excluding food and energy" inflation rate.
That difference, based on the monthly inflation rate, actually got bigger in June. The better news is that twelve-month trend in both the trimmed and ex-food-&-energy core measures is down. Here's the table, from the Dallas website:
|12-month PCE inflation|
This does contrast with the 12-month change in the median CPI, which has mainly held steady for most of the year (at 2.3 to 2.4 percent).
That difference is worth monitoring, but in any event kudos to the Dallas Fed for adding another useful statistic to the toolkit.
TrackBack URL for this entry:
Listed below are links to blogs that reference New Core Inflation Measure From The Dallas Fed :
- GDPNow's Forecast: Why Did It Spike Recently?
- How Low Is the Unemployment Rate, Really?
- What Businesses Said about Tax Reform
- Financial Regulation: Fit for New Technologies?
- Is Macroprudential Supervision Ready for the Future?
- Labor Supply Constraints and Health Problems in Rural America
- Building a Better Model: Introducing Changes to GDPNow
- How Ill a Wind? Hurricanes' Impacts on Employment and Earnings
- When Health Insurance and Its Financial Cushion Disappear
- What Is the "Right" Policy Rate?
- February 2018
- January 2018
- November 2017
- October 2017
- September 2017
- August 2017
- July 2017
- May 2017
- April 2017
- March 2017
- Business Cycles
- Business Inflation Expectations
- Capital and Investment
- Capital Markets
- Data Releases
- Economic conditions
- Economic Growth and Development
- Exchange Rates and the Dollar
- Fed Funds Futures
- Federal Debt and Deficits
- Federal Reserve and Monetary Policy
- Financial System
- Fiscal Policy
- Health Care
- Inflation Expectations
- Interest Rates
- Labor Markets
- Latin America/South America
- Monetary Policy
- Money Markets
- Real Estate
- Saving, Capital, and Investment
- Small Business
- Social Security
- This, That, and the Other
- Trade Deficit
- Wage Growth