This yields the following program possibilities (filtered, smoothed):.
Figure 1: Month-on-month inflation annualized, for CPI (bold blue), core CPI (tan), PCE deflator (strong sky blue), and core PCE deflator (light green). NBER defined peak-to-trough economic downturn dates shaded gray. Source: BLS, BEA through FRED, NBER, and authors estimations.
Heading CPI and PCE deflator month-on-month inflation looks like theyre down. So too for core CPI and PCE deflator. In order to make a more official evaluation, I approximate a simple Markov-switching design (2 regimes, various differences) over the 1960-2022 period.
Core PCE inflation was at agreement, 0.2% m/m. Are we in a new inflation routine?
This entry was published on December 23, 2022 by Menzie Chinn.
Figure 2: Estimated regime probabilities (sky blue). NBER defined peak-to-trough economic crisis dates shaded gray. Source: Authors calculations.
As of November 2022, the possibility of being in the high inflation regime is 15%.
Since the decline in core inflation is less significant, the estimated possibility for being in the high inflation program is 80%