Analyses of inflation typically focus on the core Consumer Price Index (CPI) or Personal Consumption Expenditure Deflator (PCE), both of which exclude food and energy prices. The reason for excluding food and energy prices is that both are subject to large and erratic fluctuations, which are driven by factors not related to the overall economy. If Federal Reserve Board (Fed) policy targeted an inflation rate that included these factors, it could result in rapid interest hikes to stem inflation, even though the real cause was bad weather driving up food prices or a temporary loss of oil from a major producer — not an overheated economy. In this case, the rate hikes would both have little impact on the actual cause of rising inflation, and would needlessly slow down the economy and keep workers from getting jobs.This paper argues that the Fed should also consider removing the shelter component from the core inflation indexes it uses in assessing the state of the economy.
Dean wants a non volatile measure of what the average folks on the street are spending. We buy shoes on a regular basis, and being shoed is a fundamental purchase that happens on regular intervals,and is never neglected in our budget.
The Fed maintains a balance between the standard median shoe bill and the shoe index. All other prices are in terms of shoe. A nice used car might cost 400 pairs of shoes.
No comments:
Post a Comment