What is supercore inflation, the price data that has shocked economists?

The US Department of Labor will report the inflation rate for December on Thursday, and observers expect inflation to cool further after price increases hit their highest point in decades last year.

But some economists and analysts began to see the past the general consumer price index (CPI), which measures changes in the price of a basket of goods and services commonly purchased by households. The basket should be comprehensive, including goods and services of the entire economy, but weighted on housing, food, energy, transportation, medical services and education. Instead, economists study a narrower slice of price data to get more accurate picture of what is happening in the economy.

Observers already track a metric called “core inflation,” which excludes more volatile food and energy prices. head and core inflation may drift, especially if gas prices rise. In June, the US reported a 9.1% year-over-year inflation rate, fueled by a nearly 60% increase in gas prices over the same period. However core inflation, which excludes energy prices, rose at a slower 5.9% year-on-year.

But some economists want to drill down further into price data in search of a measure called “supercore inflation.” Unlike core inflation, “supercore” inflation has no established definition, but the term refers to price measures that exclude sectors that economists feel distort the broader inflation figure. Proponents argue that supercore inflation provides a more accurate picture of what is driving prices than short-term supply shocks.

What is supercore inflation?

Economist and New York Times columnist Paul Krugman describes supercore inflation as a number that does not include food, energy and housing. (Rents jumped during the pandemic in part as people began to work remotely.) Krugman went further new columnwhich has shaped “superdupercore” inflation, which also excludes used car prices, which soared also during the height of COVID-19.

The exclusion of such volatile sectors keeps the extraordinary events, such as the destruction of the supply chain from the pandemic and the war in Ukraine, from skewing the price data, which facilitates the their what causes prices to rise in the longer term.

Instead of cutting the basket of goods used to measure inflation, some economists argue that inflation measurements should only take into account wages, since labor costs dictate what people pay. companies for goods and services. Former Treasury Secretary Larry Summers gave his own definition of “supercore inflation” last year. “We should think in terms of wage or labor cost inflation as a sort of ‘supercore’ measure of inflation,” Summers said. Bloomberg in April.

Economists like Summers warn that a tight labor market is forcing companies to pay higher wages to keep employees. Companies then pass on higher labor costs to consumers, fueling inflation and further rising wages in a phenomenon known as a “wage-price spiral.”

US Federal Reserve Chair Jerome Powell seems concerned about wages. He says that he continues to pay attention to an increase in labor costs even if the broader inflation cools.

“We want wages to rise, but they have to rise to a level consistent with 2% inflation over time,” Powell said at an event in Brookings Institution on Nov. 30.

Some economic analysts now study inflation in the service sector rather than the economy as a whole, according to Wall Street Journal. Prices in the service sector reflect wage costs more than prices in the goods sector. Therefore, high service inflation may signal that the tight labor market and high wages continue to put upward pressure on prices.

“The market will shift to a greater focus on labor-market numbers,” Roger Hallam, global head of rates for Vanguard, told the Wall Street Journal.

What is the inflation rate?

In November, headline inflation increased by 0.1% month-on-month, while core inflation was slightly higher, increasing by 0.2% month-on-month. Headline and core inflation rose by 7.1% and 6.0% respectively on a year-on-year basis.

Salary progress STUCK strong in November, up 5.1% on a year-over-year basis.

A Dow Jones consensus among economists predicted that headline inflation would decrease by 0.1% in December from the previous month. However, core inflation is expected to increase by 0.3%. On a year-on-year basis, headline and core inflation are expected to rise to 6.5% and 5.7% respectively.

Thursday’s rate report will be the last before the Fed’s Feb. 1 decision on whether to raise rates.

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