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2005 News Releases
For immediate release:
August 2, 2005
Media contact:
James Hoard
Phone: (214) 922-5307
e-mail: james.hoard@dal.frb.org
Dallas Fed Introduces
Improved Consumer Price Inflation Gauge
DALLAS— The Federal Reserve
Bank of Dallas has developed a new core consumer price
inflation gauge—called the Trimmed-Mean PCE inflation
rate—to provide a more accurate picture of inflation
rate trends for the Commerce Department’s Personal
Consumption Expenditures (PCE) index.
The Dallas Fed inflation gauge
is the first of its kind for the PCE, which is well
known among business analysts and is the Federal Reserve
Board’s preferred measure of consumer price inflation.
The usual core PCE excludes all food and energy prices;
however, the Trimmed-Mean PCE takes a more discriminating
approach to the choice of which goods and services to
include or exclude, rather than simply throwing out
all food and energy prices.
“An increase in the price
of oranges might tell us a lot about weather in Florida
but not much about long-run trends in consumer prices,”
according to Jim Dolmas, the Dallas Fed economist who
developed the new measure. “An increase in the
price of taking the family out to dinner, however, usually
tells us a good deal about the trend in consumer prices.
The Trimmed-Mean PCE correctly ignores the oranges but
pays attention to the restaurant bill. The usual core
PCE inflation rate would ignore both.”
Dolmas’ research—which
draws upon techniques developed for the Consumer Price
Index by economists at the Federal Reserve Bank of Cleveland—demonstrates
the substantially increased accuracy of the Trimmed-Mean
PCE in tracking trends in overall PCE inflation.
“While there are a number
of alternative measures of core inflation for the Consumer
Price Index, the new Dallas Fed inflation gauge is the
first of its kind for the PCE,” Dolmas said.
For the month of June, the Trimmed-Mean
PCE inflation rate was an annualized 1.4 percent. Over
the past 12 months, it has averaged 2.1 percent.
By comparison, the conventional core PCE inflation rate
released today by the Commerce Department’s Bureau
of Economic Analysis was 0.5 percent in June and 1.9
percent on a 12-month basis.
More information—and regular
monthly updates—can be found at www.dallasfed.org.
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