The Distribution of Sectoral Price Changes and Recent Inflation Developments
Abstract: Inflation has declined across many sectors so far in 2023, but the distribution of sectoral price changes still shows atypical features, such as bimodality in which substantial masses of sectors record price changes both below and above the Federal Reserve’s 2 percent inflation target. Such bimodality was not typical before the pandemic, suggesting that sector-specific price adjustments are now playing a more important role in inflation developments. The recent slowdown in inflation was partly caused by a larger-than-normal share of the consumption basket being located in the left tail of the distribution. However, current estimates of inflation persistence at the sectoral level are relatively low, and thus the beneficial effect of deflation in a few sectors could prove short-lived. These findings suggest that uncertainty around underlying inflation may now be higher than in the years immediately preceding the pandemic.
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Provider: Federal Reserve Bank of Boston
Part of Series: Current Policy Perspectives
Publication Date: 2023-08-30