Briefing

Detecting Inflation Instability

Abstract: In a stable monetary policy regime, the share of relative price increases helps to explain monthly inflation fluctuations. We illustrate this regularity with U.S. data from January 1995 through February 2020, then we use it to evaluate whether the regime has remained stable during the pandemic period. From March 2021 to February 2022, the behavior of inflation and the share of relative price increases was inconsistent with the pre-pandemic regime. Recent data show some signs of a return to that regime.

Keywords: inflation; monetary policy; Inflation stabilization;

Bibliographic Information

Provider: Federal Reserve Bank of Richmond

Part of Series: Richmond Fed Economic Brief

Publication Date: 2023-03

Volume: 23

Issue: 11