Analysts Say Low Prices Aren’t Hiding Inflation
Some analysts have complained that the Federal Reserve is relying on outdated metrics to calculate the inflation rate. But San Francisco and New York Fed research advisors argue that falling property values reduce inflation but don’t distort it.
Lowered housing prices are “indicative of a much wider decrease in inflationary pressures observed since the peak of the financial crisis,” the authors wrote.
Even if housing is removed from the core personal consumption expenditures (PCE) reading, “inflation has come down substantially over the past 2.5 years,” they said. “There is little reason to reduce the emphasis on core inflation as the main gauge of underlying price pressures in the economy.”
Source: Bloomberg, Vivien Lou Chen (04/05/2010)
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