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10

For our first assignment, our group accidentally posted two and so Professor Smitka requested that for our second post we should each do a reflection.

Aidan- For my first blog post I did a comparison of Consumer Price Index and the Breakeven Inflation rate. When creating my post I found it evident that significant increases and decreases of the CPI are indicators of inflation. However, through an explanation and graph posted by Professor Smitka of seasonally adjusted CPI I learned something different. With the seasonally adjusted data, the graph had more peaks and troughs, which did not line up with the inflation rate. This reflects the post by Wickham and Bolland of the importance that seasonal adjustments has on economics. As for the comments, it was intriguing to hear alternative viewpoints, such as how the volatility of gas could have an alternative effect on CPI. I also enjoyed being able to respond to comments, especially the questions provided. In the future I will continue to attempt to provide insightful ideas and questions when commenting as they are helpful for delving further into the blog post topic.

 

Jack- For my first post I observed the correlation between degree of education and unemployment rates. I learned several lessons from my first post, which I feel are valuable to share with the rest of the class. The first being that it is useful to connect a blog post with weekly concepts discussed in class. Doing so has make each most much more interesting to read. From the software on FRED I found that it was extremely useful to the “add line” feature after clicking “edit graph.” Doing so, allowed me to add multiple lines to my graph, ranging from high school degree level unemployment rate to doctoral degree unemployment rate. This feature has made it much easier for me to show the differences between differing education levels and is much more efficient than posting five separate graphs. An area that I wished I had initially incorporated was the ability to incorporate an interactive graph. This feature makes it easier to observe quantitative data and dates, thus allowing for easier user experience. Creating my first blog post was a great experience and taught many lessons. I hope you all can learn from my narrative.

 

 

13

Long and Ware

This graph is the CPI for All Urban Consumers: All Items Less Food and Energy.

The Consumer Price Index measures the cost of the market basket for a typical urban American family. The reason why food and energy are not included is that they often have very volatile prices, while goods and services that are represented like housing, recreation, and medical care are more stable. For this reason, the CPI represented is known as "Core CPI". Inflation is an overall increase in prices of goods and services, which results in a higher priced market basket that is CPI.


This graph contains the 5-Year Breakeven Inflation Rate.

According to the U.S. Bureau of Labor Statistics, significant increases and decreases in the CPI indicate periods of inflation and deflation over a short time frame.  Both graphs represent this through quarterly percent change, from quarter to quarter, over the past five years.

The above graphs provide supporting evidence for the relationship between CPI increases and inflation, as well as CPI decreases and deflation. For inflation, three significant peaks occur in Q2 2015, Q2 2016, and Q4 2016. Three peaks also occur for CPI in Q2 2015, Q2 2016, and Q1 2017. It is evident that there is a relationship between they are the same for the first two and a quarter difference for the third. For the troughs, which show deflation, occur in Q4 2014, Q3 2015, Q3 2016, and Q2 2017. As for significant decreases in CPI, they occur in Q3 2014, Q3 2015, Q3 2016, Q3 2017. All are within a quarter difference of the other, showing a significant relationship. The peaks and troughs noted show that there is, in fact, a strong relationship between inflation and the CPI.

The Prof: I add here a graph of core CPI QoQ inflation using seasonally adjusted data. As you can see, the peaks and troughs are quite different. An alternative to using seasonally adjusted data is to use the unadjusted data but with the percent change YoY (year over year) rather than QoQ.
More later on what the "breakeven inflation measure" represents – it's a government bond-derived measure so is not quite what it sounds like.

U.S. Bureau of Labor Statistics, Consumer Price Index for All Urban Consumers: All Items [CPIAUCSL], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/CPIAUCSL, January 18, 2018.