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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.

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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.

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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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