Consumer Price Index (CPI)

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The following is excerpted from a news release by the U.S. Bureau Of Labor Statistics in July 2003. The excerpt encapsulates the findings of the most recent Consumer Price Index data:

"The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.1 percent in July, before seasonal adjustment, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. The July level of 183.9 (1982-84=100) was 2.1 percent higher than in July 2002. The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) was unchanged in July, prior to seasonal adjustment. The July level of 179.6 was 2.0 percent higher than in July 2002.

CPI for All Urban Consumers (CPI-U): On a seasonally adjusted basis, the CPI-U rose 0.2 percent in July, the same as in June. Energy costs, which advanced sharply in the first quarter of 2003 before turning down in the second quarter, increased 0.4 percent in July. Within energy, the index for petroleum-based energy increased 1.5 percent, while the index for energy services decreased 0.5 percent. The index for food rose 0.1 percent with the index for food at home down 0.1 percent. Decreases in the indexes for nonalcoholic beverages and for other food at home more than offset small-to-moderate increases in the other four major food at home groups. The index for all items less food and energy, which was unchanged in June, increased 0.2 percent in July. The shelter index, which was virtually unchanged in June, rose 0.3 percent in July, accounting for about 85 percent of the acceleration in the all items less food and energy index."

http://stats.bls.gov/news.release/cpi.nr0.htm

 

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The following perspective is excerpted from remarks given by Federal Reserve Governor Ben S. Bernanke before the Bloomberg Panel for the Outlook on The U.S. Economy in New York City on September 4, 2003. In it he explains the dominant view within the Federal Reserve regarding the relative threats of increases or decreases in inflation, and how that view might affect future Fed policy:

"…Since May 6, the Federal Open Market Committee has assessed the risks separately for the two main components of its mandate, economic growth and inflation. According to the statement that followed our August meeting, the FOMC views the risks to sustainable growth as being roughly balanced. However the risks to inflation, according to the statement, are tilted downward, with the probability of an unwelcome fall in inflation outweighing the probability of an increase in inflation. As I see it, the persistence of economic slack even as growth picks up makes it likely that inflation will remain low and in some scenarios may fall still further. As the statement concluded, "the Committee believes that policy accommodation can be maintained for a considerable period." How long is "a considerable period"? The right answer, I think, is that "a considerable period" is not a fixed stretch of time but depends on the evolution of the economy. In particular, in my view, the Federal Open Market Committee has little reason to undertake significant tightening so long as inflation remains low and promises to remain subdued, as it does today. Let me elaborate. In the past, significantly tighter monetary policy often came shortly after the beginning of a cyclical pickup in economic growth. When Fed policymakers responded that way, they did so as the consequence of living in a regime in which inflation was already above the desired range, and the rapid acceleration of activity threatened to press against capacity and raise inflation still higher. Then the risk to satisfactory economic performance was that inflation would rise too high, and policy was forced to preempt that risk. Today inflation is at the lower end of the range consistent with optimum economic performance, and soft labor markets and excess capacity create a further downward risk to inflation. As a result, I believe that increased economic growth may not elicit the same response from the Fed that it has sometimes elicited in the past. Besides the fact that inflation is currently at the low end of the desirable range, there is a second reason why the Fed may not respond as it has in the past to a pickup in economic growth. As you know, we have seen in the past few years a truly remarkable increase in labor productivity, sufficient to permit growth in output even as employment has fallen. Output growth arising from higher productivity is not typically accompanied by increased inflationary pressures. Indeed, I would argue that, in situations of considerable slack, growth that is generated solely by increased productivity, and that is unaccompanied by substantial employment growth, may possibly require monetary ease, rather than monetary tightening, in the short run."

http://www.federalreserve.gov/boarddocs/speeches/2003/200309042/default.htm

 

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This is excerpted from an interview done with economist James Tobin that was published in The Region, a publication of the Federal Reserve Bank of Minneapolis. It appeared in December 1996.

REGION: "In an essay on monetary policy in Fortune's Encyclopedia of Economics you ask the question, "Should policymakers give priority to price stability or to full employment?" What is your response to that question?"

TOBIN: "My response is that they should pay attention to both of those objectives. They certainly should, in my opinion, take a pragmatic view of the combination of those goals. I think the current Federal Reserve has done that, under both Volcker and Greenspan. Their main objectives for monetary policy have been overall macroeconomic performance, and that includes the reduction of unemployment as much as that can be done, and also controlling inflation. I think they've done a good job. I think they look at unemployment numbers as one guide to policy, and inflation numbers as another guide to policy. They don't say, "We're just going to look at one." Likewise, they don't make monetary policy in terms of some intermediate monetary aggregates; that was very popular in the '70s, until Paul Volcker abandoned the monetary aggregates in 1983.

"We have the best record since the 1980s of any G-7 country in terms of macroeconomic policy, and I think that comes from not saying we are for price stability only; rather, it comes from saying we care about what happens to the real economy. As I said, I think the Fed has done very well recently, and I've not been a routine fan of the Fed during my career. Maybe they can continue to get lower rates of unemployment without getting any worse inflation than we're having now. It's quite possible that the inflation-safe unemployment rate is even lower than what we have now. People who had estimated it at 6 percent have since changed their minds; maybe they will again."