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Chart of the Week: Core CPI versus Core PCE

Posted By Barry Ritholtz On December 16, 2004 @ 10:14 am In Economy | Comments Disabled

Joseph A. LaVorgna, the Chief US Economist of Deutsche Bank, asks the question: "Can Inflation Go Up but the Fed Stay Measured?" He answers “yes,” because the inflation measure that Greenspan favors is focused on the core PCE deflator.


Core CPI Runs Ahead of Core PCE

Cpi_vs_pce [1]

Source: DB Global Markets Research

LaVorgna argues the core PCE is an implicit index — its weights change based on changes in consumer buying patterns. When prices rise, consumers tend to find lower priced substitutes and these substitutions help keep inflation down.


This is quite revealing of economists in general. Somehow, he omits to mention what one substitutes for gasoline, heating oil, milk, college or health care.


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Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2004/12/chart-of-the-week-core-cpi-versus-core-pce/

URLs in this post:

[1] Image: http://bigpicture.typepad.com/photos/uncategorized/cpi_vs_pce.jpg

[2] Road Rules for Hedge Funds: http://www.nytimes.com/2004/12/15/opinion/15partnoy.html

[3] What’s the Buzz About Buzz Marketing: http://knowledge.wharton.upenn.edu/article/1105.cfm

[4] Stern: Serious doings on and off the air: http://www.usatoday.com/life/people/2004-12-15-stern-cover_x.htm?POE=LIFISVA

[5] The Truth About Hedge Funds: http://www.thestreet.com/p/rmoney/jamesjcramer/10199284.html

[6] The Poor Have More Things Today — Including Wild Income Swings: http://www.latimes.com/business/la-fi-poor12dec12,0,5347390.story?coll=la-home-headlines

[7] It only looks crazy in hindsight: http://cbs.marketwatch.com/news/story.asp?guid=%7B123CB067%2DFFCF%2D4F32%2D8AAC%2D4A64393752F1%7D&siteid=mktw&dist=

[8] Michael Crichton: http://www.nytimes.com/2004/12/14/books/14cric.html?ex=1260766800&en=e6643eff5e431095&ei=5090&partner=rssuserland

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