LESSON 1 / 4 · 8 MIN
Prices: the wallet and the trend
Know why the tab looks at two inflations and why too-low inflation also loses points.
There are dozens of inflation measures. The Prices tab picks two that answer different questions and lets the rest inform without counting.
| Reading | Question | 'Normal' |
|---|---|---|
| CPI (headline) | How much are the prices you pay rising? | About 2.4% |
| Core PCE, over a year and at a 6-month pace | Is the increase sticking? | 2%, the Fed's target |
CPI includes food and energy, so it is what households feel. Core PCE excludes them and is the measure the Fed targets. CPI usually runs about four tenths above PCE, which is why 'normal' is 2.4% for one and 2% for the other.
Key idea
The grade is the worse of the two. High headline inflation (2008, oil) or persistent underlying inflation is enough to prevent a good grade.
Inflation that is too low also loses points. In 2009 CPI fell 2.1% and core PCE dropped to 0.6%: prices falling across the board usually means demand has collapsed.
Tip
The six-month annualised pace turns before the one-year change. If the six-month figure is below the one-year one, underlying inflation is cooling, even if the one-year number still looks high.
On the site · /fred/prices
Open Prices: two blocks count (Wallet and Trend) and six others are shown without counting. Check which of the two sets the grade today.
Open it on the site →Check yourself
Core PCE is 3.1% over a year and 2.6% at a six-month pace. What is happening?