The September-2 Economic Indicators release focuses on a number of different price indexes. These four indexes measure domestic prices in different ways, some taking into account substitution effects, while others do not. One indicator, the FHFA housing price index is a measure of asset prices rather than general prices throughout the economy.
The chart below compares price changes over the past two years based on the four indexes discussed in this report.
Monthly Percent Change In Index
Various Inflation Measures
As the chart shows, asset prices have been increasing at a much faster rate than either producer or consumer prices. As will be discussed below, this reflects the impact of loose monetary policy, as the Federal government is encouraging the financial and business sector to borrow at exceedingly low rates in order to purchase assets and conduct stock share buy-backs. Consumer prices have been modest based on both the PCE deflator and the CPI, partially reflecting the substitution of cheaper products for those that have become more expensive (for example chicken for beef). On the other hand, the PPI, which is a true index of prices has been rising at a slightly faster rate, although the effects of higher commodity prices are being dampened by productivity growth and lower wages.
All told, the price index data are not pointing toward higher inflation, and the slow dampening in asset price increases may suggest that the Federal Reserve’s loose monetary policy has started to run its course.
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