Volatile Prices - Blame the Auto Industry and the Government

I posted this on my intro macro class website:

Consumer prices have been, at least according to the CPI data which we discussed in class has numerous biases and flaws, volatile to say the least these last few months. BLS has released March data on prices. Prices (seasonally adjusted) fell in March.

You will notice that prices however have been CONSISTENTLY rising (or remaining stagnant) over the last few months once you exclude energy prices. Energy prices are likely fluctuating wildly due to the increased uncertainty regarding the automotive industry. Price stability is one of the goals of the Fed, as we learned since price changes influence expectations. Unfortunately, the Fed has limited control over prices in the energy sectors of the economy. This also suggests, though, that an 'orderly' bankruptcy of GM and Chrysler COULD help stabilize energy prices. Right now we are in limbo since one minute we are bailing out the autos and the next we are giving them ultimatums (of course that is just my opinion - I'd love to hear yours!)

http://www.bls.gov/news.release/cpi.nr0.htm


"The index has decreased 0.4 percent over the last year, the first 12 month decline since August 1955.

On a seasonally adjusted basis, the CPI-U decreased 0.1 percent in March after rising 0.4 percent in February. The decrease was due to a downturn in the energy index, which declined 3.0 percent in March after rising 3.3 percent the previous month. All the energy indexes decreased, particularly the indexes for fuel oil, natural gas, and motor fuel. The food index declined 0.1 percent for the second straight month to virtually the same level as October 2008. The food at home index declined 0.4 percent, the second straight such decrease, as the index for dairy and related products continued to decline."