Tuesday, April 17, 2007

Inflation Update

Some new data on inflation has been released by the government over the past week, including new data on the PPI and the CPI. This gives us a good chance to update our inflation picture.

The chart below shows inflation as measured by the CPI and PPI, including both the measures that capture all goods and services in each category as well as those measures that exclude food and energy prices (the "core" rate).

The rise in energy prices over the past couple of months shows up in the upward movement in the overall price indexes for consumers and businesses. But, unlike some, I am not worried about which way inflation is headed. After a bit of a surge in non-energy inflation during the second half of 2006, those inflation measures have moderated and remain comfortably in the neighborhood of 2%.

While the rate of core inflation doesn't give us a complete picture about how the purchasing power of the dollar is changing, it does tell us a lot about how strong inflation pressures are throughout the non-energy economy. The verdict seems to be that they remain quite moderate.

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