Great Unravelling, Part 2, What Price Stability?

Continuing with our chartbook investigation as to what was moderate during the Great Moderation, let’s turn to prices — based in part on this post.

Let’s start by looking at spreads in consumption prices versus investment prices:

Investment Price Index/Consumption Price Index, base year = 1 at 2005

The relative rise in consumption prices is driven primarily by health care and housing services:

Major PCE components

What about relative price volatility? I took the y/y percent change of the following PPI time series:

  • Producer Price Index: Finished Goods: Capital Equipment (PPICPE), Percent Change from Year Ago, Monthly, Seasonally Adjusted
  • Producer Price Index: Crude Materials for Further Processing (PPICRM), Index 1982=100, Monthly, Seasonally Adjusted
  • Producer Price Index: Intermediate Materials: Supplies & Components (PPIITM), Percent Change from Year Ago, Monthly, Seasonally Adjusted
  • Producer Price Index: Finished Consumer Foods (PPIFCF), Percent Change from Year Ago, Monthly, Seasonally Adjusted
  • Producer Price Index: Fuels & Related Products & Power (PPIENG), Percent Change from Year Ago, Monthly, Not Seasonally Adjusted
  • Producer Price Index: Finished Consumer Goods Excluding Foods (PFCGEF), Percent Change from Year Ago, Monthly, Seasonally Adjusted
Producer Price Index series dispersion

..and calculated the standard deviation of these series:

Price Dispersion measured as STDEV of % changes of Major Producer Price Indexes

In addition to spreads in producer prices, let’s look at spreads in rates, i.e. risk premia:

BAA-AAA spreads

From Shiller Data, we have the house price index relative to the consumer price index:

Real House Price Index

What price stability?

 

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Great Unravelling, Part 2, What Price Stability?

3 thoughts on “Great Unravelling, Part 2, What Price Stability?

  1. JW Mason says:

    This is great! Only one quibble: isn’t some of the fall in relative investment good prices in the first graph is due to the (largely bogus, IMO) hedonic price adjustment that implies extremely large falls in computer prices, in addition to the acceleration of health & housing prices that you point to?

  2. I am not an expert, but I tend to think the BEA has done a good job of deflating capital goods. The core problem is that health care, housing, utilities, and food have been increasing in price at a faster rate than capital goods, and this seems plausible to me.

    I am thinking of doing a follow up post in which I disaggregate the CPI basket a bit.

  3. Olesya says:

    My brother suggested I would possibly like this website. He was once entirely right. This post actually made my day.

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