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Economic Snapshot: CPI and Core CPI

Friday, April 1, 2011

1. What two measures of inflation are represented in Graph A, Graph B, and Graph C below?

The two measures of inflation represented are the CPI and the core CPI.


2. What does each graph measure differently as shown on the x-axis of each graph?

Each graph includes data for a different date range: Graph A shows one year of data, Graph B shows ten years of data, and Graph C shows more than sixty years of data.


3. Which one of the three graphs reflects a smaller variation between the CPI and the core CPI? Why?

Graph C shows a similar trend between both measures, while Graphs A and B show greater differences and variances. This is because Graph C looks at the long-term trend, and while the differences in the measurements on the first two graphs appear substantial, over the long run the trends for both the CPI and the core CPI are quite similar. Graphs showing longer time spans will reflect the long-run picture, whereas those with shortened time spans will reflect short-term trends.


4. Which graph would be best for finding the following types of information?

  1. The number of recessions over the past 50 years
  2. The trend in inflation over the first quarter of 2010
  3. The period with the all-time high inflation rate
  4. Speculating on the price levels of food and/or energy in early 2011
  5. Identifying recessions in the past 10 years

Economic Snapshot graphs

Answers: 1.-C; 2.-A; 3.-C; 4.-A; 5.-B and C;