In recent weeks, Fed officials have increasingly chosen to flag the economy's price stability and have backed away from their worries about an implicit deflation threat. This year's expectation of inflation is usually very close to what last year's inflation was. Thus policies to reduce inflation this year carry the added bonus of reducing expected inflation next year, and thus making it easier to achieve low inflation and low unemployment.
The data from the table and graph below suggested the economy is not yet safe from the dangers of deflation even as it enjoys a burst of growth. For the past year, the annual rate of core inflation has been cut almost in half, dropping from 2.4 percent to its current low, not hit since 1966. Some Fed officials, have said the large amount of slack in the economy means that pace will ease further next year. .
To prevent the inflation slowdown from turning into a persistent decline in prices, or deflation, Fed officials have vowed to keep interest rates low or cut them more, if needed. While inflation continues to ease, growth has already sped up smartly. Tax cuts have spurred retail sales, and despite the rise in mortgage rates, home builders remain upbeat.
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Inflation- Annual Change .
United States (1997-2002) .
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PPI CPI.
1997 -1.80% 1.70%.
1998 -3.20% 1.60%.
1999 4.10% 2.70%.
2000 6.60% 3.40%.
2001 -6.00% 1.60%.
2002 3.80% 2.40%.
The Consumer Price Index (CPI) has remained below 5% annually since 1991. The Producer Price Index (PPI) measures the change in the average selling price of goods entering the market for the first time. The PPI tends to be a leader indicator of inflation, and the CPI is commonly referred to as the inflation rate is the average change in prices paid by consumers for a fixed market basket of goods and services. From the chart and graph you can see that the inflation rate has gone from 1.7% in 1997 to 2.4% in 2002 which is not a significantly high increase for 5 years.