A Fresh Look at Inflation Trends
The recent months have seen a decrease in inflation, but the slowdown in price increases may be more significant than commonly thought. The Consumer Price Index, which measures inflation, is typically given as a year-over-year change. In December, prices were up 6.5% from the previous year, an improvement from the 9.1% in June. However, a more insightful view can be gained by looking at annualized three-month rolling averages.
Chief Economist Bill Nelson of the Bank Policy Institute noted that the 12-month method dilutes new information significantly. The three-month annualized rolling average method is more revealing of recent trends. By calculating how prices would change over a year based on a three-month period, this method provides a more up-to-date view of inflation trends.
This approach avoids the slow adjustment of the 12-month inflation rate. Economist John Horn explained that while annual inflation numbers can rise quickly, they take time to decrease due to the lag in calculation. It can take a while for the 12-month lag in prices to reflect today's higher prices and bring inflation back to the expected 2% range.
For any questions, comments, or stories to share about inflation trends, reach out to Diccon at dhyatt@thebalance.com.
