Inflation Measures Practice Flashcards

Vocabulary-style flashcards based on the lecture notes regarding the measurement and targeting of inflation using CPI and PCE indices.

Inflation

The percentage change in overall prices in the economy over a specified period, typically a year.

Price index

A tool created by economists to approximate the overall price level by following a set of specific prices.

Headline Consumer Price Index (CPI)

A measure calculated by the Bureau of Labor Statistics (BLS) tracking price changes for a basket of goods and services purchased by the typical urban consumer.

Bureau of Labor Statistics (BLS)

The government agency responsible for calculating the CPI, which originally created the index in $1919$.

CPI Weight for Housing

The portion of the CPI designated for shelter spending, which accounts for $33\%$ of the index.

CPI Weight for Medical Care

The portion of the CPI designated for healthcare spending, accounting for nearly $9\%$ of the index.

Federal Open Market Committee (FOMC)

The body within the Federal Reserve that monitors inflation and set a target headline PCE inflation rate of $2\%$.

Headline Personal Consumption Expenditures (PCE) price index

A broad index of prices preferred by the Federal Reserve since the $1990s$ because it covers more goods and services and updates weights monthly.

PCE Weight for Housing

The portion of the PCE price index designated for shelter, which is about $16\%$.

Average headline PCE inflation (1995-2019)

The historical average inflation rate during this period, which was $1.8\%$, slightly below the official target.

Core index

A type of inflation measure (either PCE or CPI) that excludes volatile food and energy components to estimate underlying inflation.

Dallas Fed trimmed-mean PCE inflation rate

A statistical measure that removes the upper tail of the largest price changes and the lower tail of the smallest price changes to calculate a weighted average of the remaining components.

Cleveland Fed measures

Statistical measures of inflation that include the median and trimmed-mean CPI.

Atlanta Fed measure

A measure of inflation known as the sticky-price CPI.