Assessing Progress toward Price Stability: Looking Forward and Looking Backward

Inflation, as measured by the rate of change of the Consumer Price Index (CP1), has slowed substantially in recent years. Since 1990, it has averaged less than 3 percent, compared with an average rate of about 5 percent in the previous three years (see figure 1). Similarly, other measures, designed to exclude transitory special factors and focus on the so-called core or underlying rate of inflation, have also slowed to around 3 percent. From the perspective of this rear-view mirror, it seems evident that the deceleration in prices has stopped, as both measures have tended to stabilize around the recent lower mean levels.