The Fed's favorite inflation gauge shows price hikes cooled last month

[progree]

10. I don't get it. What's being concealed and obfuscated? Every report on inflation that I've seen

Last edited Wed Feb 1, 2023, 12:23 AM - Edit history (3)

CPI, PPI, PCE include both the full measure and the core measure. With the full measure usually being the one in the headlines and presented first. Both in the media reports and the official BLS and BEA government reports.

The Fed prefers the core number for PREDICTING what full measure inflation will be in the next several months, because it strips out the volatile food and especially volatile energy components.

I've seen a multi-decade graph with both core CPI and full measure CPI together on the same graph. Basically, the core CPI looks like a smoothed out version of the full measure CPI, while the latter oscillates around the core CPI.

Edited 1/31/23 to add See below for a 12 month graph comparing full measure CPI and Core CPI End Edit

Contrary to media punditry, the Fed doesn't ignore full measure inflation. Its just not their favorite measure for PREDICTING what full measure inflation will be in the future.

But as far as the inflation that people are currently experiencing and have in the past, the full measure gauge is the only one that matters (e.g. are our paychecks keeping up with inflation? The only meaningful inflation number for that comparison, and what people are experiencing and have experienced in their lives, is the full measure inflation).

Now, when CNN writes so abysmally wrong like this:

Core PCE is the Fed's favored inflation gauge as it provides a more complete picture of consumer costs and spending.

Well, that's one CNN reporter. I've never seen anything like this written before. NO, of course not. A measure excluding food and energy cannot possibly in any way, in any shape, nor in any form, "provide a more complete picture of consumer costs and spending" than the full meaure inflation with those components. That's because the latter is a superset of the former.

Some message board pundits have compared past and present paycheck earnings to core inflation. That's wrong too.

Edited to add in light of #12 below: I'm mostly talking about people who cherry-pick the lower of the inflation measures to compare wage growth to.

I also reassert that for comparing wage growth to past and current inflation, the actual full measure inflation is the proper gauge for what people have experienced and are experiencing.

For predicting future inflation, and for predicting future real (inflation-adjusted) wages, like the Fed, I prefer using core inflation.

Note that core inflation has been running higher than full measure inflation for several months. Meaning that lately, wage comparisons to core inflation look worse than when compared to full measure inflation.

Edited 1/31/23 to add:

Last 6 months ANNUALIZED:
CPI: +1.9%
CORE CPI: +4.6% < == Last 3 months: 3.2% annualized

CPI - https://data.bls.gov/timeseries/CUSR0000SA0&output_view=pct_1mth
CORE CPI - http://data.bls.gov/timeseries/CUSR0000SA0L1E&output_view=pct_1mth



The high volatility of the full measure CPI compared to core CPI is evident even in this short time-frame.

Note also, incidentally, that during the first 6 months of 2022, the full measure CPI averaged much more than the core CPI. In the last 6 months of the year, the opposite was true.