Two Measures Of Inflation With A Comment Regarding Gasoline Prices

Note from dshort: I’ve update the charts below to include the latest Personal Consumption Expenditures (PCE) in yesterday’s Personal Income and Outlays news release from the BEA.

As the charts below illustrate, core CPI and core PCE are both well below the Federal Reserve’s 2% target, sometimes referenced as a 1.75%-2% range.

The December 0.7% core PCE is the lowest ever recorded. October’s 0.6% is the lowest core CPI ever recorded.

However we’re beginning to see some divergence between the headline and core numbers for both indicators.


Are producers and retailers unable to pass increased costs to customers?

Or will we see cost increases passed along to the customer in the months ahead?

Energy costs, especially gasoline, will no doubt play a significant role as this drama plays out.

The Bureau of labour Statistic’s Consumer Price Index and The Bureau of Economic Analysis’s monthly Personal Income and Outlays report are the main indicators for price trends in the US.

The chart below is an overlay of core CPI and core PCE since 2000.



Here is a long-term perspective from the actual beginnings of the two series.



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For some technical data accounting for the differences between the two, see this comparison article from the BEA.

Naturally in the real world, we can’t exclude food and energy from our monthly expenses. But the extreme volatility of these two categories, especially energy costs, often obscures the underlying trend, which is the focus of the chart above. For evidence of the volatility, see this overlay of headline and core CPI and this one of headline and core PCE.

Fuel on the Fire of Inflation Analysis

One the other hand, the volatile price of gasoline explains why so many people are angered by the exclusion of food and energy from core measures of inflation, as this chart of the past decade makes perfectly clear.



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