2022 annual report highlights CfIR efforts to provide better understanding of inflation In a year when inflation was persistently elevated and drew widespread attention, the Center for Inflation Research (CfIR) met the challenge to produce insightful research, current analysis, and explanatory content to bolster knowledge of inflation and its behavior among researchers, policymakers, and the informed public. In CfIR’s Inflation 101 section, new offerings include brief stop-motion videos explaining “shrinkflation,” “hyperinflation,” and “stagflation,” plus updated infographics. For those delving deeper into inflation, CfIR began regular publication of the Indirect ConsumerInflation Expectations measure, and researchers produced 18 articles and papers in the Bank’s Economic Commentary and working papers series. Read the full report here.
Inflation-Related CONFERENCES
Inflation: Drivers and Dynamics Conference 2023 CfIR and the European Central Bank (ECB) hosted the Inflation: Drivers and Dynamics Conference 2023 on August 31–September 1. The conference was held in person in Frankfurt, Germany, with virtual attendance available. It brought together top researchers from academia, central banks, and other policy institutions to present research findings related to inflation. View conference presentations here.
Inflation-Related SPEECHES & INTERVIEWS
Inflation: Four Questions Requiring Further Research to Inform Monetary Policy
Federal Reserve Bank of Cleveland president Loretta J. Mester discussed “Inflation: Four Questions Requiring Further Research to Inform Monetary Policy” at the CfIR and European Central Bank’s annual inflation conference on September 1. Read the speech.
Börsen-Zeitung Interviews President Mester The question of whether or not the Federal Reserve will raise its key interest rate further is commanding the attention of market participants and economists around the world. In an interview with Börsen-Zeitung published September 5, Loretta J. Mester, president of the Cleveland Fed, offers her take on the situation. Read the interview.
Bloomberg TV Interviews President Mester Cleveland Fed president Loretta J. Mester talks about inflation, the economy, and mortgage rates in an August 25 interview. Watch the interview.
CNBC Interviews President Mester We ”probably have some more work to do” to get core inflation under control, Cleveland Fed president Loretta J. Mester tells correspondent Steve Liesman. Watch the interview.
An Update on the Economy and Monetary Policy
The Federal Reserve is closer to the end of its tightening phase than the beginning, Cleveland Fed president Loretta J. Mester said in a July 10 speech at the University of California, San Diego. Read the speech.
INDICATORS & DATA
Inflation is in the news. Subscribe to alerts to stay on top of the data with our inflation data and indicators.
Median CPI View this indicator for a signal of the underlying inflation trend for the consumer price index. Updated monthly.
Trimmed-mean CPI See this indicator for another signal of the underlying inflation trend for the consumer price index. Updated monthly.
Median PCE inflation View this indicator for a signal of the underlying inflation trend for the personal consumption expenditures price index. Updated monthly.
Inflation expectations Watch this indicator for our model-based estimates of the expected rate of inflation, along with the inflation risk premium, the real risk premium, and the real interest rate. Updated monthly.
Inflation nowcasting Look here for daily nowcasts of inflation for two popular price indexes, the price index for personal consumption expenditures (PCE) and the consumer price index (CPI). Updated each business day.
Measures of wage growth have increased substantially during and after the pandemic compared to their average levels in the decade before. Does higher wage growth reflect compensation for a higher cost of living, brought about by an increase in inflation in the past two years? Or has an imbalance between strong labor demand and restrained labor supply lifted wage growth? Using a new empirical wage Phillips curve model, we find that the increase in wage growth largely reflects the pass-through of higher inflation and does not reflect labor market imbalances. The model forecasts a decline in wage growth to about 3 percent annually by 2025.
Some argue that the Fed underreacted to rising inflation in 2021 after the US economy started to recover from the COVID-19 crisis. By using data from the Summary of Economic Projections (SEP), we surmise that the FOMC expected to keep the federal funds rate near zero by the end of 2021, but at the same time, the committee also expected to make the policy rate catch up to inflation over the next two years. We then argue that the Fed chose this gradual approach in response to the negative demand shock that pushed the policy rate to its effective zero lower bound. Economic literature on optimal monetary policy suggests that this policy approach is optimal in an event such as the COVID-19 crisis.
The stabilization, or anchoring, of inflation expectations at a target can help a central bank meet its goals. This paper develops a measure of expectations’ anchoring that combines the deviation of a consensus forecast from an inflation target with forecaster disagreement. We apply the measure to survey-based forecasts of PCE price inflation at medium- and longer-run horizons. Following the FOMC’s 2012 announcement of a 2 percent inflation target, the anchoring of both forecast series steadily improved through 2020:Q4. Recently, while longer-run expectations have remained well-anchored, the anchoring of medium-run expectations weakened significantly during the pandemic before strengthening in 2023:Q1.
Brian Adams, Lara Loewenstein, Hugh Montag, Randal J. Verbrugge
Rent measurement determines 32 percent of the CPI. Accurate rent measurement is therefore essential for accurate inflation measurement, but the CPI rent index often differs from alternative measures of rent inflation. Using repeat-rent inflation measures created from CPI microdata, we show that this discrepancy is largely explained by differences in rent growth for new tenants relative to all tenants. New-tenant rent inflation provides information about future all-tenant rent inflation, but the use of new-tenant rents is contraindicated in a cost-of-living index such as the CPI. Nevertheless, policymakers should integrate new-tenant inflation into inflation forecasts and monetary policy decisions.
The Expectations of Others Ezequiel Garcia-Lembergman, Ina Hajdini, John Leer, Mathieu Pedemonte, Raphael S. Schoenle
Based on a framework of memory and recall that accounts for social networks, we provide conditions under which social networks can amplify expectations. We provide evidence for several predictions of the model using a novel dataset on inflation expectations and social network connections: Inflation expectations in the social network are statistically significantly, positively associated with individual inflation expectations; the relationship is stronger for groups that share common demographic characteristics, such as gender, income, or political affiliation. An instrumental variable approach further establishes causality of these results while also showing that salient information transmits strongly through the network. Our estimates imply that the influence of the social network overall amplifies but does not destabilize inflation expectations.
Using close to 40 years of textual data from FOMC transcripts and the Federal Reserve staff's Greenbook/Tealbook, we extend Romer and Romer (2008) to test if the FOMC adds information relative to its staff forecasts not via its own quantitative forecasts but via its words. We use methods from natural language processing to extract from both types of document text-based forecasts that capture attentiveness to and sentiment about the macroeconomy. We test whether these text-based forecasts provide value-added in explaining the distribution of outcomes for GDP growth, the unemployment rate, and inflation. We find that FOMC tales about macroeconomic risks do add value in the tails, especially for GDP growth and the unemployment rate. For inflation, we find value-added in both FOMC point forecasts and narrative, once we extract from the text a broader set of measures of macroeconomic sentiment and risk attentiveness.
CfIR Updates is sent periodically,
providing information on recent research,
conferences, and new web content.
Federal Reserve Bank of Cleveland, 1455 E 6th St, Cleveland, OH 44114, US
