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Understanding Inflation: Key Measures and Trends Over Time

This educational resource explores different measures of inflation, including the Consumer Price Index (CPI), Producer Price Index (PPI), and Personal Consumption Expenditures Price Index (PCEPI). It highlights how prices have changed over the years, showing that consumers paid, on average, 131% more in 2010 compared to 1980. Additionally, the resource examines recent trends in inflation, including the percentage changes in personal consumption prices between 2003 and 2013. This information is crucial for understanding the Federal Reserve's monetary policy decisions.

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Understanding Inflation: Key Measures and Trends Over Time

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  1. InflationMeasuring Price Changes Date last updated: July 7, 2014 DataPost Federal Reserve Bank of San Francisco Economic Education Group

  2. Inflation– Did You Know? • There are different measures of price levels: • Consumer Price Index (CPI) • Producer Price Index (PPI) • Personal Consumption Expenditures Price Index (PCEPI) Source: Bureau of Economic Analysis Since 1980 prices have been increasing. Compared to 1980, consumers in 2010 were paying 131% more on average, according to the PCEPI. DataPost http://www.frbsf.org/education/teachers/datapost/index.html FRBSF Economic Education Group

  3. Measures of Price Levels • Fed’s Preferred Measure Sources: Bureau of Labor Statistics and Bureau of Economic Analysis Note: See PowerPoint file for references DataPost http://www.frbsf.org/education/teachers/datapost/index.html FRBSF Economic Education Group

  4. Using the PCEPI(Personal Consumption Expenditures Price Index) What is the percentage change in prices for all domestic personal consumption? (Current Price – Past Price) x 100 Past Price (107.2 – 87.6) x 100 87.6 = 22.4% This means that consumers are paying, on average, 22.4% more in 2013 for the same items as in 2003. DataPost Source: Bureau of Economic Analysis http://www.frbsf.org/education/teachers/datapost/index.html FRBSF Economic Education Group

  5. Personal Consumption Expenditures (PCE) Inflation 12-month Percent Change, Seasonally Adjusted through May 2014 TOTAL CORE Source: Bureau of Economic Analysis & FRBSF Calculations DataPost http://www.frbsf.org/education/teachers/datapost/index.html FRBSF Economic Education Group

  6. Annotated Chart NotesPersonal Consumption Expenditures (PCE) Inflation12-month Percent Change, Seasonally Adjusted through May 2014 TOTAL– Includes all expenditures (a.k.a. “Headline Inflation”) TOTAL CORE CORE – excludes food and energy prices, which are typically more volatile Source: Bureau of Economic Analysis & FRBSF Calculations DataPost http://www.frbsf.org/education/teachers/datapost/index.html FRBSF Economic Education Group

  7. What Do You Think? • What is the Federal Reserve’s preferred measure of inflation in making monetary policy decisions? • What was headline inflation in June 2009? Core inflation in May 2012? • How would you describe the changes in headline inflation during the Great Recession? • What do you notice about the overall trend in “headline” inflation compared to “core”? DataPost http://www.frbsf.org/education/teachers/datapost/index.html FRBSF Economic Education Group

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