Saturday, July 11, 2009

Dreaming Inflation

I have been playing with price indices for a while, and I noticed something weird in core inflation:

On first sight, this is a rather comforting picture. All the core inflation measures are down, with I, the CBT's preferred measure, below 3%. Moreover, services inflation (not in picture) is around 6.2-6.3%.

However, I noticed that the F measure, excluding energy, liquor and tobacco and more importantly and administrative prices and indirect taxes, has been hovering around 6-6.5% for the past three months, i.e. the three months when the tax cuts were in effect.

I looked at the latest CBT inflation summary for more on this, but I did not find any references. Not that the CBT will miss the end-year target, but just another pointer that my 6.66% year-end expectation may not be that fictional after all.

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