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Strategies & Market Trends : US Economic Trend Analysis
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To: gpowell who wrote (1)8/3/2005 3:54:29 PM
From: gpowellRead Replies (2) of 97
 
If CPI overstates inflation, is there a better indicator? Economists usually use the GDP deflator: en.wikipedia.org , and it does seem to indicate past inflation fairly well.

But, given that the Federal Reserve has inflation targets, i.e. they act as if a positive rate of inflation is a desirable goal, is there a measure of "potential inflation" that leads Federal Reserve action?

Let’s look at this chart:

i10.photobucket.com

The chart is a collection of inflation indicators compared to 2.4% reference line, which is assumed to be a target rate of inflation. Given this target, unit labor costs (ULC), which is price of a unit of output per price of a unit of labor, appears to indicate the degree of “accommodation” bias in the Federal Reserve action. More specifically, the rate of change in ULC growth (second derivative of ULC) seems to lead Fed action.

This thread will keep a close eye on ULC trends.
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