A Simple Framework to Monitor Inflation
Abstract: This paper proposes a simple framework to help monitor and understand movements in PCE inﬂation in real time. The approach is to decompose inﬂation using simple categorical-level regressions or systems of equations. The estimates are then used to group categories into components of PCE inﬂation. I review some applications of the methodology, and show how it can help explain inﬂation dynamics over recent episodes. The methodology shows that inﬂation remained low in the mid-2010s primarily because of factors unrelated to aggregate economic conditions. I also apply the methodology to the Covid-19 pandemic. The decomposition reveals that a majority of the drop in core PCE inﬂation after the onset of the pandemic was attributable to an initial strong decline in consumer demand, which more recently has rebounded somewhat.
File(s): File format is application/pdf https://www.frbsf.org/economic-research/files/wp2020-29.pdf
Provider: Federal Reserve Bank of San Francisco
Part of Series: Working Paper Series
Publication Date: 2020-08-19