Janet. L. YELLEN
What Determines Core Inflation ?
What is PCE Inflation Model ?
2015 and 2017
Today, we try to understand what is the PCE inflation model of FED and what determines core inflation in USA from Yellen's speeches 2015 and 2017.
Firstly, you can directly see Yellen's model from this web-link and pdf-link.
Yellen uses two model which are connected each other.
First one is Total PCE Inflation model.
Other one is Core PCE Inflation model.
This graph reports the contributions made by various factors to the shortfall of PCE price inflation from 2 percent, year by year.
What is the problem ?
a- Problem is not "slack" (labor underutilization)
As illustrated by the purple dotted portion of the bars, labor underutilization, or “slack,” accounts for a shrinking share of the shortfall since 2012 and is now having a negligible effect.
b- Problem is not import prices
By comparison, the influence of changes in relative food, energy, and import prices--the solid blue and checkered red portions--has been more substantial in the past few years, although their contribution is estimated to have greatly diminished this year.
c- Problem is idiosyncratic shifts
Some of the recent decline in inflation, although not all, reflects idiosyncratic shifts in the prices of some items, such as the large decline in telecommunication service prices seen earlier in the year, that are unlikely to be repeated.
Firstly, you can directly see Yellen's model from this web-link and pdf-link.
Yellen uses two model which are connected each other.
First one is Total PCE Inflation model.
Other one is Core PCE Inflation model.
This graph reports the contributions made by various factors to the shortfall of PCE price inflation from 2 percent, year by year.
What is the problem ?
a- Problem is not "slack" (labor underutilization)
As illustrated by the purple dotted portion of the bars, labor underutilization, or “slack,” accounts for a shrinking share of the shortfall since 2012 and is now having a negligible effect.
b- Problem is not import prices
By comparison, the influence of changes in relative food, energy, and import prices--the solid blue and checkered red portions--has been more substantial in the past few years, although their contribution is estimated to have greatly diminished this year.
c- Problem is idiosyncratic shifts
Some of the recent decline in inflation, although not all, reflects idiosyncratic shifts in the prices of some items, such as the large decline in telecommunication service prices seen earlier in the year, that are unlikely to be repeated.
Dr. Engin YILMAZ
Ankara
15.11.2017
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