The Inflation Project

Tracking inflation and being aware of its effect is a vital component of the Federal Reserve's monetary policy. The Inflation Project compiles links to data releases, reports, and relevant research; provides a calendar of upcoming data releases; and highlights international inflation updates.

Inflation Updates

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March 12, 2010
Household inflation expectations nearly steady in March, according to Reuters/University of Michigan

Preliminary data for March show that the year-ahead inflation expectation of U.S. households rose from 2.7 percent to 2.8 percent. Households' inflation expectations five to ten years ahead remained at 2.7 percent.

March 9, 2010
The FOMC reflects on the nature of current unemployment

The minutes of the January 26–27 Federal Open Market Committee meeting reported the following discussion on whether the current high rate of unemployment is an accurate indicator of economic slack.

"Several participants observed that the necessity of reallocating labor across sectors as the recovery proceeds, as well as the loss of skills caused by high levels of long-term unemployment and permanent separations, could reduce the economy's potential output, at least temporarily; historical experience following large adverse financial shocks suggests such an effect. On the other hand, if recent productivity gains were to be sustained, as some business contacts indicated they would be, potential output currently could be higher than standard measures suggested, and the high level of the unemployment rate could be a more accurate indication of slack in resource utilization than usual measures of the output gap."

Okun's law, which in its current form posits that every 2 percentage point decline in output corresponds to a 1 percentage point rise in the unemployment rate, appears to have shifted. Given the economy's performance during the recent recession, the rise in unemployment has been greater than Okun's law would indicate. Two recent papers have taken a closer look at why the relationship between unemployment and growth appears to be deviating from historical experience.

Mary Daly and Bart Hobijn of the San Francisco Fed note that the shift in the nature of Okun's law is due the unusual rise in labor productivity over the cycle. However, "a key question that remains unanswered by this analysis is whether this pattern will continue in 2010. Most forecasters assume that the economy will return to its historical path this year, following Okun's two-to-one ratio.…Under this scenario, unemployment would begin to edge down this year as the economy recovers and gains momentum. But there are clearly risks to this view.… Anecdotal evidence suggests that efforts to contain costs and remain nimble in the face of uncertainty have become a fixture in business strategy. If productivity keeps on growing at an above-average pace, then unemployment forecasts based on Okun's law could continue to be overly optimistic."

Another take on Okun's law comes from Justin Wolfers, who wonders if the problem isn't in the measurement of GDP. Taking a look at the income side of the GDP accounts, which hints at a more severe recession than what is reported by GDP derived from the expenditure accounts, Wolfers shows that the historical relationship between growth and unemployment isn't far off track. "These GDI [gross domestic income] numbers suggest that output growth actually declined much more sharply than had been widely understood. Based on this alternative measure, the recent sharp rise in unemployment is no mystery at all. (Indeed, the 2008 data suggest that the real mystery may be why it didn't rise faster, earlier.)"

March 4, 2010
Fourth quarter productivity revised higher, unit labor costs revised downward

Nonfarm business productivity growth for the fourth quarter was revised upward to 6.9 percent from the 6.2 percent estimate published February 4. According to a March 4 BLS release, "the larger productivity gain reflects a 0.4 percentage point upward revision to output and a similar downward revision to hours." Meanwhile, unit labor costs for nonfarm business (compensation per hour adjusted for productivity) fell 5.9 percent—a sharp downward revision from the 4.4 percent decline in the preliminary report.