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Friday, December 16, 2011

EXPOSED Why Krugman "Smoothed" Price Inflation Over Four Years


He argued for such this way:

One thing that becomes obvious when you look at inflation data is that the numbers bounce around a lot, not just from month to month but from year to year. One way to try to get past the noise is to use one or another definition of core inflation, which I think is necessary if you want to catch underlying inflation trends early. But to get a historical picture, it’s good enough just to use longish averages.
Since Fed policy can change from day to day, or at least from policy meeting to policy meeting, a three year or four year average is an odd choice. If Fed policy has been relatively stable over a part of that period and only has become more erratic in recent years, you would have to look at a shorter period, say year-over-year inflation rate changes to get a sense as to what is going on . Let's see what has gone on with a Krugman favorite CPI "core inflation" and also CPI "all items" (headline) over recent years:

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