New Inflation Data

The BLS released its January estimate of the CPI this morning . Here’s the updated graph of the 12-month percent change in the core (i.e. excluding food and energy) CPI and PPI. It shows no major changes in the inflation rate from the previous few months. (The news stories will talk about the big increase of 0.5% in January in the overall price index, but that was almost entirely due to a spike on oil prices. It’s not worth paying too much attention to changes in inflation that are just due to swings in the price of oil, because they don’t tell us much about the underlying health of the economy.)

Note that I’ve added a series called “Chained CPI.” That’s the core consumer price index using a more accurate method of calculation (and which they just started calculating in 2000). It is thought to reflect the real change in consumer prices better than the headline CPI rate. From Jan 2003 to Jan 2004 the chained index shows a 0.75% increase. That’s extremely low inflation, and there’s no sign of it picking up yet. The lack of any demonstrated increase in pricing power is another piece of evidence that the recovery is not as robust as some think.