Consumer Prices Rise Modestly
Subject Consumer Price Index
Topic Output, Income, and the Price Level
Key Words Inflation, Deflation, Consumer Price Index, and Cost of Living Adjustments
News Story

On October 16, the Labor Department announced the latest reading of the Consumer Price Index, which indicated that consumer prices rose by only 0.3 percent in September. Leaving out food and energy prices, which tend to vary greatly from month to month, core consumer prices rose by only 0.1 percent for the second month in a row.

The Consumer Price Index is one of the government's most closely monitored reports. The most recent report should serve to ease the Federal Reserve policy maker's recent fears about deflation, a potentially dangerous and widespread weakness in prices. Most analysts view the modest increase in prices as a sign of economic recovery, but not enough to spur the Fed into increasing rates to fight inflation.

Considering the 12 month period ending in September, consumer prices rose 2.3 percent, compared with a rise of 0.4 percent for all of last year. Leaving out food and energy, core prices went up 1.2 percent to record the smallest increase since 1966. The Social Security Administration has determined that benefit recipients will get a 2.1 percent cost-of-living increase next year based on inflationary trends.

The CPI report from the Labor Department, a related report on jobless benefits indicated that new claims for unemployment insurance are dropping; and a productivity report from the Fed that indicated factory output increases of 0.7 percent in September all serve to depict an economy that is on the mend in terms of growth while enjoying a stable price climate.

(Updated November, 2003)


Define inflation and deflation. Which do you think poses a bigger threat to consumers?

2. How do you use the CPI to compute inflation between two years?
3. Why would a falling CPI be of concern to the Federal Reserve policy makers?
Source Associated Press, "Consumer Price Index Up 0.3%, Mostly Because of Gasoline," The New York Time Online, October 17, 2003.

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