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The Distribution of Sectoral Price Changes and Recent Inflation Developments

Author

Listed:
  • Christopher D. Cotton
  • Vaishali Garga
  • Giovanni P. Olivei
  • Viacheslav Sheremirov

Abstract

Inflation has declined across many sectors so far in 2023, but the distribution of sectoral price changes still shows atypical features, such as bimodality in which substantial masses of sectors record price changes both below and above the Federal Reserve’s 2 percent inflation target. Such bimodality was not typical before the pandemic, suggesting that sector-specific price adjustments are now playing a more important role in inflation developments. The recent slowdown in inflation was partly caused by a larger-than-normal share of the consumption basket being located in the left tail of the distribution. However, current estimates of inflation persistence at the sectoral level are relatively low, and thus the beneficial effect of deflation in a few sectors could prove short-lived. These findings suggest that uncertainty around underlying inflation may now be higher than in the years immediately preceding the pandemic.

Suggested Citation

  • Christopher D. Cotton & Vaishali Garga & Giovanni P. Olivei & Viacheslav Sheremirov, 2023. "The Distribution of Sectoral Price Changes and Recent Inflation Developments," Current Policy Perspectives 96665, Federal Reserve Bank of Boston.
    • Handle: RePEc:fip:fedbcq:96665
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    More about this item

    Keywords

    inflation persistence; bimodality; sectoral price change distribution; underlying inflation;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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