Are Some Prices in the CPI More Forward Looking Than Others? We Think So

Some of the items that make up the Consumer Price Index change prices frequently, while others are slow to change. We explore whether these two sets of prices--sticky and flexible--provide insight on different aspects of the inflation process. We find that sticky prices appear to incorporate expecta...

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Bibliographic Details
Published inEconomic commentary (Cleveland) no. 2010-2; pp. 1 - 6
Main Authors Bryan, Michael F, Meyer, Brent
Format Journal Article Trade Publication Article
LanguageEnglish
Published Cleveland Federal Reserve Bank of Cleveland 19.05.2010
Subjects
Consumer Price Index
Consumer price indexes
Economic conditions
Economists
Forecasts
Inflation
Inflation (Finance)
Phillips curve
Volatility
United States > US
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Summary:Some of the items that make up the Consumer Price Index change prices frequently, while others are slow to change. We explore whether these two sets of prices--sticky and flexible--provide insight on different aspects of the inflation process. We find that sticky prices appear to incorporate expectations about future inflation to a greater degree than prices that change on a frequent basis, while flexible prices respond more powerfully to economic conditions--economic slack. Importantly, our sticky-price measure seems to contain a component of inflation expectations, and that component may be useful when trying to gauge where inflation is heading.
ISSN:0428-1276
2163-3738
DOI:10.26509/frbc-ec-201002