St. Louis Fed Announces New Price Pressures Measure

ST. LOUIS — The Federal Reserve Bank of St. Louis has created four new measures of the probability of inflation averages over the next 12 months, including its signature Price Pressures Measure.

The four measures will be updated monthly in the St. Louis Fed’s Federal Reserve Economic Data (FRED) database. The categories of probabilities are:

• Inflation averaging more than 2.5 percent, called the Price Pressures Measure (PPM, at 2.8 percent probability for November)
• Inflation averaging between 1.5 and 2.5 percent (17.1 percent probability for November)
• Inflation averaging between 0 and 1.5 percent (73.8 percent probability for November)
• Deflation (6.3 percent probability for November)

Current and historical data for the four measures can be found together on their FRED release page.

The St. Louis Fed developed the measures to help policymakers, financial market participants and others monitor the near-term outlook for inflation. The model includes nine factors, which are comprised of 104 data series and grouped into the following categories: consumer price indexes, producer price indexes, commodity prices, housing and commercial property prices, labor market indicators, financial variables, inflation expectations, business and consumer survey data, and foreign price variables.

“In forecasting, as in monetary policymaking, it is important to try to assess the likelihood, or probability, of economic outcomes that differ from the consensus forecast. The St. Louis Fed has developed these new data series with that in mind,” said Kevin Kliesen, a business officer and research officer who helped develop the index. “In particular, the PPM–the probability of inflation averaging 2.5 percent or above–is an instrument that policymakers and financial market participants can add to their tool kit to monitor the near-term outlook for inflation.”

The St. Louis Fed will typically update the data the same day that the personal consumption expenditures price index data are released by the U.S. Bureau of Economic Analysis. Updates will be posted in FRED and sent to media in a news release. The next release will be Dec. 23.