IS U.S. CPI UNDER-ESTIMATING INFLATION?
May 2, 2005 Lately, there seems to be far more chatter circulating as to whether the U.S. consumer price index (CPI) is under-representing the true state of inflation. After all, producers are reporting greater ease in passing along higher prices to consumers, while house prices and energy costs have been riding high for quite some time. And yet, the annual rate of headline CPI is running at a reasonable 3 per cent clip, while the core measure, which excludes food and energy, sits at an even lower 2.3 per cent. While the measurement of CPI does have some shortcomings, the rate of change in prices is consistent with other indicators of inflation and productive capacity, lending credence to the view that the Fed has not fallen behind the inflation curve. However, these indicators also share one important attribute – a decidedly upward trend. And, even an economic slow patch may not be sufficient to deter the Fed from reducing monetary stimulus, as the risks to being caught behind the eig
