Friday, May 23, 2014

Chart of the week

The core PCE inflation rate has slowed down from 2% to 1% in two years. The chart above, from Bloomberg, shows the contribution to that decline of the inflation rate of different categories of personal consumption expenditures (vertical axis).

Health care services make the largest contribution to disinflation, about one third, in part because they have a large weight in the price index. This disinflation in medical services is thought to be a one-off, the result of lower Medicare reimbursements as part of the 2013 budget sequestration, and the expiration of patents on some drugs, which opened the floodgates to generic alternatives.

The category with the sharpest deceleration, however, in inflation (horizontal axis) was clothing. That seems to be the continuation of a decades-long trend of declining prices of apparel, as the share of imported clothing increases and prices of those imports decline.

No comments: