Meet the Author

Todd Clark |

Vice President

Todd Clark

Todd Clark is a vice president at the Federal Reserve Bank of Cleveland. He leads the Research Department’s Money, Financial Markets, and Monetary Policy Group. Dr. Clark specializes in research related to monetary policy and macroeconomics. He has published research on a variety of topics, including the relationship between producer and consumer prices, the measurement of inflation, forecasting methods, and the evaluation of forecasts.

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Meet the Author

Margaret Jacobson |

Senior Research Analyst

Margaret Jacobson

Margaret Jacobson is a former senior research analyst in the Research Department of the Federal Reserve Bank of Cleveland.

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Economic Trends

What’s Weighing on Inflation?

Todd Clark and Margaret Jacobson

Various indicators show that CPI inflation has declined over the past year or so. Although the Bureau of Labor Statistics’ (BLS) most recent release of the Consumer Price Index (CPI) shows an annualized increase of 5.9 percent for the month of June, CPI inflation has been very low for many months of the year. As a result, measured on a 12-month basis, CPI inflation continued to remain below 2 percent, at 1.8 percent. The “core” CPI, which covers goods and services excluding food and energy, rose at an annual rate of 2.0 percent in June, putting the 12-month rate at 1.6 percent. Measured on a 12-month basis, core CPI inflation has slowed from 2.2 percent in June 2012 to 1.9 percent in December 2012 to its current rate of 1.6 percent.

The current low rates of inflation in the CPI and core CPI are partly due to low rates of inflation in the prices of goods (see “Recent Trends in Various CPI-Based Inflation Measures” and “Behind Recent Disinflation: 2010 Redux?”). Over the past year or so, inflation rates for both nondurable and durable goods captured in the CPI have slowed, reaching levels that, today, are very low. In June, the 12-month CPI inflation rate for durable goods was −0.6 percent (meaning that the level of durables prices fell 0.6 percent), and the CPI inflation rate for nondurable goods was 1.3 percent.

Goods represent about 40 percent of the total CPI consumer basket, with food and beverages comprising 15 percent of the entire basket and nondurables and durables making up the other 25 percent (as measured by relative importances in December 2012). For the 27 goods components of the CPI, inflation rates over the past 12 months vary quite a bit across components, as is normally the case. However, inflation rates are moderate or low for most categories and negative (indicating declining prices) for a number of categories.

While the CPI doesn’t distinguish goods produced in the U.S. from those produced abroad, the low inflation rate of CPI goods prices seems to be partly due to low inflation rates for the prices of imported goods:  the inflation rates of separate BLS indexes of import prices are very low. The prices of imported durable goods prices fell 0.5 percent on average over the same period. Inflation in imported nondurable goods was 1.1 percent on a year-over-year basis in June. Taking a more disaggregated look at inflation in imported good yields a picture similar to that for the components of CPI goods. While inflation rates measured over the past 12 months differ quite a bit across categories of imported consumer goods, rates are low for most and negative for a fair number.

So, to briefly answer the question posed in the title, continued low rates of inflation in goods prices—as measured in import prices and CPI goods prices—appear to be an important factor behind overall and core CPI inflation rates that, on a 12-month basis, remained below 2 percent in June.