Saturday, June 19, 2010

Future Looking "Sticky Price" CPI Shows Disinflation

Okay slow down! What do all those fancy words mean?

 As one Economic Commentary from the Federal Reserve Bank of Cleveland states the "sticky price" CPI :
"are “sticky,” which means that they may not respond to changing market conditions as quickly as other, more “flexible-price” goods. And because sticky prices are slow to change, it seems reasonable to assume that when these prices are set, they incorporate expectations about future inflation to a greater degree than prices that change on a frequent basis."
  Inflation is an increase in the price level and disinflation is a slowing in the rate of inflation.
The Atlanta Fed's Inflation Project reports the most recent numbers suggest disinflation:

"In May the flexible cut of the CPI declined at an 8.4 percent annual rate, the largest such drop since December 2008. Excluding food and energy, flexible CPI rose 5.5 percent (annual rate) and is up 1.6 percent from year-earlier levels."

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