Working Paper

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.

Keywords: inflation; covid-19; measurement; PCE;

https://doi.org/10.24148/wp2020-29

Bibliographic Information

Provider: Federal Reserve Bank of San Francisco

Part of Series: Working Paper Series

Publication Date: 2020-08-19

Number: 2020-29