In a recent speech, Atlanta Fed President Dennis Lockhart laid out two competing risks to the inflation outlook. On one side, the usual measures of economic slack (output gap measures) suggest that there is so much excess production capacity that prices and wages are under great—and increasing—disinflationary pressure. All this is occurring at a time […]
Ever hear the one about the statistician who had his head in the oven, his feet in the freezer, but who said he felt fine—on average? We kind of feel that way when we look at the recent distribution of inflation forecasts. Not only does the Federal Reserve Bank of Atlanta produce its own economic forecasts, but we’re also eager consumers of others’ forecasts. That’s because we believe there is useful information to be learned from varying views. For one thing, it helps to reveal the risks. The current inflation forecast is a good case-in-point.
Much of modern business cycle theory—and the policy prescriptions that accompany it—rest on the idea that something interferes with markets. After all, if markets are working efficiently, there isn’t anything that policy can do to improve matters. What that “something” is remains the great unknown in macroeconomics, but there is a common belief that price “stickiness” lies at the heart of the problem.
While economists wrestle with the question of what, exactly, causes prices to be sticky—that is, adjust more slowly than they would in the absence of whatever is getting in their way—some have taken on the tedious task of documenting the speed at which prices adjust. And, as you might imagine, it turns out that some prices adjust very quickly while others adjust at a glacial pace.
Here is what we know about the October consumer price index (CPI). The overall index declined at an annualized rate of about 11 percent for the month—it’s sharpest fall since 1947. A plunge in gasoline prices played a big part in the decline, but that isn’t the whole story. The traditional “core” CPI, which excludes food and energy prices, also declined in October (at an annualized rate of about 1 percent). This is the first decline in the core CPI since 1982.