Inflation
CPI vs PCE, components, persistence, and the supply-vs-demand decomposition that determines how the Fed responds
On Wednesday June 10, 2022, the Bureau of Labor Statistics released the May 2022 Consumer Price Index report. Headline CPI rose 8.6% year-over-year — the highest reading since 1981 (per the BLS news release at bls.
gov/news.release/archives/cpi_06102022.htm) — and continued upward over the following month, with the June 2022 print released July 13 2022 reaching 9.
1% year-over-year, the cycle peak (per bls.gov/news.release/archives/cpi_07132022.
htm). On the same dates, the Bureau of Economic Analysis released the personal consumption expenditures price index — the Fed's preferred inflation measure — which peaked at 7.2% year-over-year in June 2022 (per bea.
gov/data/personal-consumption-expenditures-price-index). Core measures (excluding the volatile food and energy components) peaked separately: core CPI at 6.6% year-over-year in September 2022; core PCE at 5.
6% year-over-year in February 2022 (per BLS and BEA respective releases). The four readings — headline CPI, headline PCE, core CPI, core PCE — peaked at different magnitudes and on different timelines because each captures a different basket and a different methodology.
That is the opening. Finishing a lesson is where it stops being interesting and starts being useful: the full lesson runs to 6 sections and ends with 6 practice questions. A free account is what opens the rest, and the other 255 lessons in the Academy with it. No card.
What this lesson covers
- 1Components of inflation — what's actually in the basket and why it matters
- 2Inflation calculation and the YoY vs MoM choice
- 3U.S. inflation indices — primary measures and their characteristics
- 42021-2024 — the inflation surge, peak, and disinflation cycle
- 5Where to see this on the platform
- 6Summary