This week, Craig Siminski, of CMS Retirement Income Planning, shares with us an article comparing the key inflation measures that economists and investors are watching for signs of easing price pressures:
Headline inflation, which refers to the 12-month increase in the Consumer Price Index (CPI), increased 9.1% in June 2022 — the highest rate since 1981 — before the U.S. economy began the fraught process of disinflation.
Disinflation means the rate of inflation is decreasing. Prices may still be rising overall, but at a slower rate than before. It shouldn’t be confused with deflation, which means the inflation rate is negative, because prices are generally falling.
The Federal Open Market Committee (FOMC) is raising the federal funds rate in a steadfast effort to reduce consumer demand and bring inflation down to its 2% target. Along the way, many economists, businesses, and investors are watching key inflation measures for signs of easing price pressures.
Of course, almost everyone is wondering how quickly the rate of inflation will fall back to normal and how high interest rates will rise in the meantime.
Where to Look
The CPI tracks the cost of a fixed market basket of goods and services purchased by consumers. As such, it captures the prices paid for the same items over time, but it does not reflect changes in consumer behavior and can be unduly influenced by extreme price swings in specific categories. Core CPI strips out volatile food and energy prices.
The Fed’s preferred gauge for its 2% target is the Personal Consumption Expenditures (PCE) Price Index. The PCE price index is even broader than the CPI, and it adjusts for shifts in consumer behavior, such as when shoppers purchase less-expensive items instead of others that become too expensive.
The Producer Price Index (PPI) measures the wholesale prices that producers charge businesses and others for goods and services. A set of underlying indexes captures prices through all stages of production — for raw materials, intermediate goods (used to produce other goods), and finished products. The PPI is often considered an early warning of…
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Craig Siminski is a CERTIFIED FINANCIAL PLANNER™ professional, with more than 25 years of experience. His goal is to provide families, business owners, and their employees with assistance in building their financial freedom.
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