Question

Read the article about the CPI from Reuters (available as a pdf file in the "Articles" tab on the Blackboard menu), then

a) Explain your understanding of the "core cpi"; why is this distinction worth making? Give an example(s) drawn from the article.
b) Use the charts provided in the article to discuss the trend in apparel and footwear prices -- be specific with respect to the data as provided in the charts.

ECONOMY

to raise interest rates.

The Labor Department said Wednesday its Consumer Price Index declined 0.2 percent last month as lower energy prices more than made up for stubbornly high food prices.

It was the first drop since April last year and followed a 0.1 percent gain in July.

US consumer prices sink in August, may take heat off Fed

Reuters and The Sourcing Journal Wednesday, Sep 17, 2014

By Judith Russell and Reuters staff Edited by Tad Lincoln

Getty Images
Customers shop at the J.C. Penney store in Brooklyn, New York.

U.S. consumer prices fell for the first time in nearly 11⁄2 years in August and underlying inflation pressures were muted, which could lessen the urgency for the Federal Reserve

Economists polled by Reuters had forecast consumer prices being flat in August. The CPI increased 1.7 percent in the 12 months through August after rising 2.0 percent in July. Inflation has cooled somewhat after accelerating in the second quarter. Stripping out food and energy prices, the so-called core CPI was unchanged last month for the first time since October 2010 after nudging up 0.1 percent in July. In the 12 months through August, the core CPI rose 1.7 percent, slowing down from

July's 1.9 percent increase. The Fed targets 2 percent inflation. The CPI report was released ahead of the conclusion of the U.S. central bank's two-day policy meeting; The Fed’s policy statement will be watched for signals on the timing of the first interest rate increase.

“There is still enough slack in the economy to keep a tight lid on price increases, which should support the view of those within the Fed arguing in favor of patience before the first interest rate hike,” said Anthony Karydakis, chief economic strategist at MillerTabak in New York.

Energy prices fell for a second straight month, with gasoline prices plunging 4.1 percent after declining 0.3 percent the prior month.

Food prices rose 0.2 percent after advancing 0.4 percent in July as the effects of a drought in California linger. Rents increased 0.2 percent last month after rising 0.3 percent in July. The core CPI was damped by a second straight month of sharp declines in airline fares. Recreation prices recorded their largest drop since December 2009, while household

furnishings declined. Falling used car prices also weighed. In addition, Back-to-school price promotions helped push apparel into deflationary territory in August, though footwear managed to turn in an average price increase. The index for apparel and footwear was flat compared to the same month last year,slightly below July’s 0.3% rise.

Apparel prices (excluding footwear) suffered a slight decline of 0.4% year-over-year, after a negligible uptick in July and a 1.4% gain in June. Footwear prices rose by 1.2%, their biggest increase in 11 months.

The decline was driven by a 1.5% fall in menswear prices. Women’s apparel pricesedged up by 1.1% in the month, their smallest increase in six months.

The price index for infants’ and children’s increased for the sixth straight month, rising1.8% in August, more than June’s 1.1% gain. Both boys’ and girls’ apparel declined,however.

Apparel prices continue to be pressured by a particularly intense promotional environment and an expansion of the off-price and outlet store channels that are gaining share from conventional retail formats.

Answer 1

Core CPi is different measure as it excludes food and energy prices and hence give smuch more clear indication of economic inflation as food and energy majorly constitute CPi volatility.

Solution 2

Apparel prices saw deflationary measures and declined by 0.4% year on year. Men aparel prices decreased by 1.5% however women apparel prices increased by 1.1%.For children it rise by 1.8%.

Footwear prices rose by 1.2%