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The Inflation Update: May 2002 Columbus, Ohi
The goal of central bankers is to make inflation a boring topic for
everyone else. Like water and
power, price stability should be something the rest of us take for
granted. In the same way that
local public officials ensure that we have clean water and uninterrupted
electricity, monetary policymakers are supposed to guard against
inflation. It looks like
they’re doing their jobs. As
it should be, we all have to tune to the World Cup matches in Japan and
South Korea for excitement. (And it is exciting.)
This morning the BLS reported that the all-items CPI was unchanged
between April and May 2002. At the same time, the CPI excluding food and
energy rose a very modest 1.9% for the month (at an annual rate), while
the Median CPI computed by the Federal Reserve Bank of Cleveland increased
only 2.3%!. Over the past
twelve months, core inflation measures have moderated slightly, with the
CPI ex. food and energy up 2.5% and the Median CPI increasing 3.6%.
Like the U.S. victory over Mexico in the World Cup match early
yesterday morning, the best news is the most unexpected.
Over the past month, owner-equivalent rent (OER) rose a very most
2.3% (a.r.). This is far
below the recent trend that has been over 4%.
It is starting to look like housing market may be cooling off a
bit. Either that, or this
number is a fluke. We’ll have to wait and see.
Medical care costs are playing the role of Brazil in this month’s
CPI saga. Just as the
talented Brazilians looks to be on their way to the final in Yokohama on
June 30, medical care costs are skyrocketing, rising 5.7% (a.r.) for the
month. Hospital services are now up 12% (a.r.) for the past 6
months. But this really is
the only dark spot in the report. Yes,
goods prices fell and there will be renewed cries that deflation is here.
But always remember, when inflation is low, prices that rise less
than average will fall.
For policymakers, this morning’s report provides comfort that low
interest rates have not yet ignited an inflationary outburst, and so the
FOMC can continue focusing attention on counteracting the excesses of the
late 1990s. Until either
business investment recovers, or there are clear signs of inflation on the
horizon, we can expect monetary policy to remain accommodative. While I
might start moving interest rates up gradually now, there is virtually no
chance that Chairman Greenspan and his colleagues will make a move next
week, and so their meeting will be rather boring.
Instead I suggest that they consider setting up a television screen
in the boardroom at the Board of Governors building in Washington and
watching the World Cup semifinal game between the winner of Brazil/England
and Senegal/Turkey. They will have to arrive early, since the game starts
at 7:30am local time, but it should be over by 10:00am, and they can have
a short meeting starting an hour later than usual.
I’ll definitely be watching, and my money is on Brazil. Consumer Price Inflation, Various
Measures
For
previous updates, as well as my occasional essays on current policy
issues, (Note:
If you have trouble viewing the tables, you can download the pdf
fil
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