Inflation Falls to 1.7% in September

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Inflation Falls to 1.7% in September

Steve Verdon | Monday, October 30, 2006

This inflation rate isn’t the CPI produced by the Bureau of Labor Statistics, but the Trimmed Mean Personal Consumption Expenditure inflation rate produced by the Federal Reserve Bank of Dallas.

The term trimmed means that a portion of the series that make up the index are discarded. The series that make up the index are ranked from “those that rose the most” to “those that declined the most”, and then a portion of the data at each extreme are discarded. A more detailed explanation is provided here, but the reason for this kind of adjustment to the data is that it has been shown to outperform more traditional measures of inflation.

The implication here, when coupled with the decline in the CPI for September is that it takes some pressure off of the Fed to raise interest rates, and could even justify a possible rate cut. Obviously, holding the interest rates steady or even a rate cut is a good thing for growth and could help with a “soft landing” for the economy.

About the Author: Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research.