Quick Summary

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Inflation.xls explains how to use the FRED Excel add-in to review the historical record of inflation in the United States and to gain familiarity with inflation rate performance across countries. There is emphasis on computation in calculating the inflation rate as the percentage change in the price index and in using the price index to deflate nominal series. Four indexes, CPI, GDP deflator, the Fed's core inflation (PCE less food and energy), and chained CPI are examined.

Screencasts

1. • http://vimeo.com/econexcel/inflationusahistory: examines the historical record of price variability since World War II, as measured by the CPI, in the United States; the last episode of severe inflation occurred in the 1970s, and since then, the United States has enjoyed relative price stability

2. • http://vimeo.com/econexcel/inflationcollegetuition: downloads data from the BLS on the college tuition price index and compares it to the overall CPI; the results are dramatic – college tuition has risen twice as fast as overall prices – and it also makes clear that data from other sources can be merged in a spreadsheet with FRED downloads, which is a simple but powerful point

3. • http://vimeo.com/econexcel/inflationrealvalues: shows how to deflate a nominal series of postage stamp prices with a price index to create a series of real postage stamp prices in 2012 dollars; task uses data for minimum wage; long CPI series back to 1790

4. • http://vimeo.com/econexcel/inflationcomparing: downloads the CPI, GDP deflator, core inflation, and chained CPI; compares them and explains why we have competing price indexes

Introduction

As with GDP and unemployment, this section assumes a book or other background reading is providing definitions and explanations of price index theory. The Intro sheet provides a brief review via a listing of important concepts (which might form the basis of a lecture on inflation), and the CPI sheet describes the weights for the eight major categories in the CPI-U market basket, but the focus of the screencasts is primarily on practical computations and empirical data.

No mention is made of seasonal adjustment, which is covered in the previous section on unemployment.