Paul Krugman highlights the Atlanta Fed’s very interesting work on a ‘sticky price’ CPI. It may sometimes seem like every regional Fed bank has its own custom inflation measure (the Dallas Fed has the trimmed-mean and Cleveland produces the median CPI) and those come on top of numerous unrefined measures of price rises: the CPI, PCE, core PCE, PCE at market prices etc.
But I’d say that Fed officials place almost equal emphasis on all of them. The refinements are all efforts to get closer to the ‘true’ state of inflationary pressures but each has its potential idiosyncracies. Looking at all of them makes the trend clearer.
Here is one Fed official, Dave Altig, research director at the Atlanta Fed, breaking down his thought process. For further evidence here is one of chairman Ben Bernanke’s charts from a November speech:
Rising inflation pressure might “strongly affect” Slovenia’s economic competitiveness, the central bank has warned. Inflation rose to 1.9 per cent in December, but the eurozone member fears it will soon rise higher.
“Economic growth and employment, which are dependent on international trade, are also tied to efforts that inflation doesn’t breach the target in the euro region,” the Bank of Slovenia said in a statement, according to Bloomberg. “To anchor inflation expectations, the consideration of domestic price policies that ensure price stability will be in place.”
The European Central Bank’s crisis-fighting measures hit an unexpected snag with the surprise flop of “sterilising” operations to counter the inflationary impact of its €76.5bn outstanding eurozone government bond purchases. Tuesday’s operations flopped because overnight market interest rates were higher than the maximum 1 per cent the ECB was prepared to pay – making its offer unattractive to many banks.
To counter inflation, the ECB has sought to withdraw amounts equivalent to the stock of bonds from the financial markets – allowing Jean-Claude Trichet, ECB president, to argue that the programme was different from US-style “quantitative easing” aimed at boosting the economy. The sterilising operations have been largely symbolic because the ECB has continued to meet in full eurozone banks’ demands for liquidity.
Good news, bad news. An economy that contracted in Q4, yet record output from manufacturing as the PMI rose to 62 against a consensus estimate of 57.9. How can we make sense of this?
The Purchasing Managers’ Index is a number derived from questionnaire responses, where the questions ask for fact and not opinion. A typical question might allow up/down/same responses – they do not ask for company sensitive numbers. Says Markit:
Australia’s cash rate will remain at 4.75 per cent, with strong growth and good terms of trade outweighing the temporary disruption due to flooding:
In setting monetary policy the Bank will, as on past occasions where natural disasters have occurred, look through the estimated effects of these short-term events on activity and prices. The focus of monetary policy will remain on medium-term prospects for economic activity and inflation.
Were it not for the flooding, this would be quite a bullish statement. “Australia’s terms of trade are at their highest level since the early 1950s and national income is growing strongly,” says the Bank. “Employment growth was unusually strong in 2010. Most leading indicators suggest further growth, though most likely at a slower pace.”