There’s also the GDP deflator as an inflation indicator.
The point about food and energy being volatile is not that people stop eating or driving when prices change, but that it can be up one month and down the next, whereas inflation is supposed to be a generalized increase in prices that presumably is longer-term. It’s not necessarily a good idea to base a policy decision on where a very jumpy number is this month, particularly if the transmission mechanism likely takes more than a month to get through the system.
There are arguments for including the volatile stuff or not, but people make more out of that issue than there needs to be.
I haven’t looked at the methodology in a while, but for volatile stuff, it would probably make sense to smooth it with a moving average or something and include it.
Yes, my tongue and cheek comment wasn’t intended to be against your statement that its the most popular series, but against why people care about core CPI when it’s really irrelevant.
There is definitely local inflation that is not being captured. For example high end apartments are getting crazy expensive in places like SF, NY and even mid-tier cities. I mean, if I moved to Arkansas I could probably retire now…
My question is how does the FED expect inflation to come in?
The question is based on the following observations:
A- The QE money was not invested to spur economic activity with in the United States as we dint see any new manafaturing activity taking place, in short no new capital expenditure in the economy.
B- I believe a certain percentage of the QE money was used my corporates for share purchases to increase share prices of thier firms, which indicated that the indexes are inflated and over priced at the moment.
C- The strong dollar is un deniably hurting US exports in global markets as it makes them more expensive, so if we dont see demand for US goods. Why would there be capital expenditure in the first place?
D- If there was no new capital expenditure how are the employment figures improving?
Any thoughts on the above mentioned points? Please correct me if i am not thinking along the rite lines…
Yes, the Fed tends to focus on core PCE, which excludes food and energy prices. With that being said, the Fed can also take CPI, PPI, or averages into account and to varying degrees. In other words, while they have a rough framework for measuring inflation, this is complemented by “they make it up”.