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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
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.
Quote of the Day
"There are many groups in contemporary society who find it in their interest to promote fears. A free society, a free press, has a lot of good features, but giving you an accurate view of the world is not one."
-Michael Crichton 
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URL to article: http://www.ritholtz.com/blog/2004/12/chart-of-the-week-core-cpi-versus-core-pce/
URLs in this post:
 Image: http://bigpicture.typepad.com/photos/uncategorized/cpi_vs_pce.jpg
 Road Rules for Hedge Funds: http://www.nytimes.com/2004/12/15/opinion/15partnoy.html
 What’s the Buzz About Buzz Marketing: http://knowledge.wharton.upenn.edu/article/1105.cfm
 Stern: Serious doings on and off the air: http://www.usatoday.com/life/people/2004-12-15-stern-cover_x.htm?POE=LIFISVA
 The Truth About Hedge Funds: http://www.thestreet.com/p/rmoney/jamesjcramer/10199284.html
 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
 It only looks crazy in hindsight: http://cbs.marketwatch.com/news/story.asp?guid=%7B123CB067%2DFFCF%2D4F32%2D8AAC%2D4A64393752F1%7D&siteid=mktw&dist=
 Michael Crichton: http://www.nytimes.com/2004/12/14/books/14cric.html?ex=1260766800&en=e6643eff5e431095&ei=5090&partner=rssuserland
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