Ed Dolan | Jul 17, 2013 04:53AM ET
U.S. consumer price inflation jumped to a seasonally adjusted annual rate of over 5.9 percent in June, according data released today by the Bureau of Labor Statistics. That was up from an inflation rate of just 1.8 percent in May. In March and April, the CPI actually decreased. How much do we need to worry about the sharp increase in inflation, or the increasing volatility of inflation over the past year, both of which are evident in the following chart? Here are some points to consider.
Other energy and food prices are also volatile, although not quite so much so. If we strip food and energy out of the CPI, we get the seasonally adjusted core CPI, which varies much less from month to month, as the next chart shows.
As we see in the following graph, the seasonally adjusted CPI is usually less volatile than the nonadjusted version—that is the whole reason for seasonal adjustment in the first place. However, in June, the rise in the adjusted version was considerably more than that of its unadjusted counterpart.
That does not mean, though, that consumers will stop complaining about inflation. Consumers put very different subjective weights on price changes than those applied by the BLS. Consumers pay more attention to the prices of things that they buy frequently, like milk and gasoline, than on things they buy less often, like appliances or computer software. Furthermore, as behavioral economists remind us, they perceive losses from the increased prices of some goods more sharply than equivalent gains from decreased prices of other goods. As a result, for many if not most people, the perceived rate of inflation exceeds the measured rate of inflation. If you are among the many who think that inflation is still an imminent threat to our economy, I welcome your comments.
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