Ed Dolan's Econ Blog

Updated Seasonal Factors Remove Much of the Volatility from 2011 Monthly CPI Data

2011 was a roller coaster ride for U.S. consumer price inflation—or was it? If you went by the releases from the Bureau of Labor Statistics, monthly CPI inflation, stated as annual rates, bounced from over 6 percent in February, down to under -2 percent by June, and then back up over 6 percent in July. That made life hard for policy makers, forecasters, and anyone trying to use the CPI to index payments.

It turns out, though, that inflation was not so volatile after all. As part of yesterday’s CPI report for January, the BLS released revised seasonal adjustment factors. When we apply the new adjustment factors to data for the last two years, as in the following chart, much of the month-to-month variation in inflation disappears. The smoothing of the June-to-July bounce in inflation is especially noticeable.  The revision of seasonal adjustments does not affect year-on-year inflation.

Meanwhile, the inflation report for January shows a modest upturn, as we would expect from other signs of a strengthening economy. The uptick of inflation is broadly based. The headline all-items CPI and the core CPI, which omits food and energy prices, both rose to a 2.4 percent annual rate, just above the Fed’s now-official inflation target. The Cleveland Fed’s 16 percent trimmed mean CPI also notched upward to a rate above 2 percent. December had been the first month in a year when all three measures had come in below 2 percent.

One more indicator also suggests that the period of abnormally low CPI inflation may be drawing to a close: the Atlanta Fed’s index of deflation probability, which has dropped a full 2 percentage points since the end of January. Still, the probability of deflation remains above 10 percent. The inflation hawks are not vindicated quite yet.

Follow this link to download a brief slideshow with additional CPI charts


5 Responses to “Updated Seasonal Factors Remove Much of the Volatility from 2011 Monthly CPI Data”

sierra7February 19th, 2012 at 9:00 am

What a joke!! Shop for food and energy….and you can tell in an instant what "inflation" is!!!!!!!!
Oh, sorry. I forgot…the financial elites exclude food and energy from the "official" stats….
Like I said…what a joke.

realworldFebruary 19th, 2012 at 12:53 pm

Totally agree with sierra7. Economics and those trying to teach the so called science are jokes. Try facing reality when you talk inflation instead of focusing on statistics that have no real world meaning. Since you and many economist friends did such a great job predicting the recent debt crises, why should anyone believe your inflation garbage. Just keep printing that money boys and we will be hearing soon a different song.