Chart of the Week for March 25 - March 31, 2011
Inflation is a general increase in prices and is carefully monitored to gauge economic health. Too much, too little, or unexpected changes in inflation is generally thought by economists to be detrimental to the economy. Inflation is typically measured by the Consumer Price Index ("CPI"). This index is calculated by measuring the average change in price of a given basket of goods.
Core CPI is the same index, with volatile food and energy prices excluded. The chart above illustrates the trend in these two versions of the CPI over the past two years.
Core CPI remained around 2% in 2009, but falling food and/or energy prices drove the overall CPI into negative territory for much of the year.
In 2010, Core CPI dropped to under 1% with food and/or energy prices remaining fairly stable until the fourth quarter.Thus far in 2011, supply constraints, primarily stemming from the improving global economy and political unrest in the Middle East, have propelled a rise in food and energy prices. This change has been a key factor in the overall CPI increase from 1.5% in December 2010 to 2.1% in February 2011.
The Federal Reserve Open Market Committee ("FOMC") met on March 15, 2011, and issued a press release stating its expectation that the upward pressure of energy and other commodity prices on inflation will be transitory. Therefore, the FOMC will continue purchasing longer-term Treasury securities and maintaining a target range for the federal funds rate at 0 to 1/4 percent. However, the FOMC will act to stem inflation, should it threaten the economic recovery.
While Overall and Core CPI remain low, they have been trending upwards. This change has been felt by consumers in higher prices of food and energy and is being monitored by Federal Reserve.
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