This workbook uses the FRED Excel add-in to download and analyze measures of inflation.

To install and learn how to use the FRED add-in, please visit
www.depauw.edu/learn/macroexcel/exceladdins

Prerequisite: basic understanding of the Consumer Price Index (CPI) and the GDP Deflator.
BLS on the web: bls.gov

Here are some basic concepts about inflation that you should already know. Getting inflation data without a basic unders
indexes is dangerous and should not be attempted. Use the list below as a quick refresher of your knowledge of inflation

Inflation is a process of continuously rising prices, which implies a continuously falling value of money. Deflation is the revers
rising value of money. Disinflation is a decrease in inflation so prices are still rising, but not as fast.

Unlike physical units of goods and hours of labor, the inflation rate is an abstract concept computed by the percentage chan

A price index is how we estimate the price level. A price index is the real-world counterpart to the theoretical concept of the

We always compute the inflation rate as the percentage change in a price index, but there are different ways to construct pr
Therefore, we get different inflation rates from different price indexes even if we are using the same data.

In general, we do not have a way to produce a perfect price index. Search the web for "index number problem" to learn mor
quantity, Laspeyres (usually pronounced in English as lass-pairs) and fixed-price, Paasche (prounced pash) indexes. Even Fish
not ideal, it is merely often better than the other two.

The percentage change in the CPI (Laspeyres) is the most often used measure of the inflation rate. The GDP deflator (forme
Fisher Ideal) is also popular.

"The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a m
consumer goods and services." (This CPI FAQ link is a good summary of the CPI.)

The CPI shoots high, overestimating inflation by roughly one percentage point. It suffers from substitution bias and other pro
upper bound on inflation:

There is a lot of noise and false information about the CPI. It is part of the political wars. For a balanced, clear statement of w
including direct refutation of common myths, www.bls.gov/cpi/cpifaq.htm#Question_1
see

The percentage change in the GDP deflator (Paasche) is a broader measure of inflation than the CPI because it includes all ne
produced, final goods and services. www.ssa.gov/history/reports/boskinrpt.html

There are many other price indexes. The Fed tracks "core inflation" via the Personal Consumption Expenditures (PCE) index l
energy(which often have a great deal of price volatility). The chained CPI (C-CPI) is gaining favor.
www.bls.gov/opub/mlr/2008/08/art1full.pdf
Dividing a nominal value by its price index value produces a real value. This computation removes the effect of prices and en
comparison over time.
Begin by visiting the CPI sheet, then head over to the ToDo sheet for links to the screencasts and tasks.
 ta without a basic understanding of price
ur knowledge of inflation.

ney. Deflation is the reverse, falling prices and

d by the percentage change in the price level.

theoretical concept of the price level.

erent ways to construct price indexes.

me data.

ber problem" to learn more about fixed-

d pash) indexes. Even Fisher's Ideal Index is

The GDP deflator (formerly Paasche, now

y urban consumers for a market basket of

ood summary of the CPI.)

titution bias and other problems. The CPI is an

anced, clear statement of what the CPI does,

PI because it includes all new, domestically

Expenditures (PCE) index less food and

the effect of prices and enables a better

This sheet briefly reviews the Consumer Price Index (CPI).

The BLS prices 80,000 individual items each month, collecting them into 200 categories and these 8 groups:

Source: www.bls.gov/cpi/cpifaq.htm

FRED follows this same organization:

Each group (and sub-category) has a weight, determined by the share of income consumers spend. The weights are adjusted e
Here are weights from 1980 and 2013:

1980
 Food and beverages 18.685
Housing 44.999
Apparel 5.107
Transportation 18.572
Medical Care 4.817
Entertainment 3.738
Other Goods and Services 4.081
100

Entertainment; 3.738 Other Goods and Services; 4.081 Education and Communication; 6.779 Other G
Medical Care; 4.817
Food and beverages; 18.685 Recreation;
Medical Care; 7
Transportation; 18.572

Apparel; 5.107 Transportation; 1

Housing; 44.999
Apparel

Recently, the BLS has started reporting a chained CPI (C-CPI) that has better properties than the conventional CPI. It may catch

Proceed to the ToDo sheet to view screencasts and try your hand at using FRED to download price and inflation data.
categories and these 8 groups:

me consumers spend. The weights are adjusted each year.

2013
 Food and beverages 15.261 Food, housing, clothing, and transportation shares of a typical consum
Housing 41.021 while medical care and recreation have risen.
Apparel 3.564 The share of a budget going to education and communication has risen
Transportation 16.846 Communication includes internet and smart phone services -- no one p
Medical Care 7.163 The CPI was recently modified to include computer software prices.
Recreation 5.99
Education and Communication 6.779
Other Goods and Services 3.376
100

Education and Communication; 6.779 Other Goods and Services; 3.376 Food and beverages; 15.261
Recreation; 5.99
Medical Care; 7.163

Transportation; 16.846 Housing; 41.021

Apparel; 3.564

roperties than the conventional CPI. It may catch on.

ED to download price and inflation data.

shares of a typical consumer's budget have fallen,

d communication has risen a great deal -- enough to have it's own group.
phone services -- no one paid for this in 1980!
mputer software prices.
This workbook has four screencasts on inflation.
Each screencast has associated questions. Watch the screencast, then do the tasks.

To install and learn how to use the FRED add-in, please visit
www.depauw.edu/learn/macroexcel/exceladdins

1. Inflation Performance in the United States via the CPI

vimeo.com/econexcel/inflationusahistory

Task 1: Repeat the download and analysis in the screencast using the latest available data and choose a country oth
Copy and paste your chart of the US CPI and your chosen country in a Word doc and comment on the chart.
Hint: Search FRED for "harmonized cpi" to get many more countries than those in the "Browse Popular Internationa

2. Inflation in a Specific Group: College Tuition

vimeo.com/econexcel/inflationcollegetuition

Task 2: Repeat the download and analysis in the screencast using prescription drugs instead of education.
Copy and paste your chart of inflation for the overall CPI and prescription drugs in a Word doc and comment on the

3. Using a Price Index to Create a Real Variable: Postage Stamp Prices

vimeo.com/econexcel/inflationrealvalues

Task 3: There is a constant debate in Congress and in the public square over minimum wage legislation.
Supporters argue that a higher minimum wage would raise the earnings of millions of low-wage workers and prima
Opponents claim that increasing the minimum wage will lead to widespread job loss among the very workers that m
there are better ways to alleviate poverty.
Before ever getting into the pros and cons of the minimum wage debate, we should ask a simple question:
Is the current $7.25/hr federal minimum wage high compared to past minimum wages?
Note: The minimum wage in the United States was higher than $7.25/hr in 18 states and the District of
In sheet 3, scroll right to column S (and down if needed) to see data for the federal minimum wage in the United St
Create a chart of nominal and real minimum wage (in dollars of the CPI's latest year available) and paste it in a Wor

4. Comparing Price Indexes

vimeo.com/econexcel/inflationcomparing

Task 4: Create a chart that compares the CPI and CPI less food and energy for a country in the Browse Popular Inter
Copy and paste your chart in a Word doc.
Does the behavior of the overall CPI and CPI less food and energy for your country mimic that of the United States?

Key takeaways from the screencasts:

There are many ways to meaure the price level and that is why we have several competing price indexes.

CPI is the most popular, but it overstates inflation by roughly one percentage point.

A price index can be used to create a real value by deflating a nominal value.
Key takeaways from the screencasts:

There are many ways to meaure the price level and that is why we have several competing price indexes.

CPI is the most popular, but it overstates inflation by roughly one percentage point.

A price index can be used to create a real value by deflating a nominal value.

Inflation (or deflation) is measured by the percentage change in a price index.

Sub-category indexes such as college tuition or prescription drugs often have different price patterns that are masked b
overall CPI.

The United States has had episodes of extreme price movements of which the inflationary era of the 1970s was the last
then, the American economy has enjoyed relative price stability.

Inflation should be low, say 1% or so annually, and higher than that is harmful, but so is lower -- deflation (negative perc
change in a price index) is toxic for an economy.
and choose a country other than France.
ment on the chart.
wse Popular International Data" button.

d of education.
doc and comment on the chart.

e legislation.
wage workers and primarily benefit the poorest working families.
g the very workers that mimumum wage laws are targeted to help and

imple question:

tates and the District of Columbia as of July 1, 2013.

m wage in the United States since its inception in 1938.
ble) and paste it in a Word doc along with your answer to the question.

he Browse Popular International Data button.

hat of the United States? Explain why or why not.

e indexes.
e indexes.

tterns that are masked by the

of the 1970s was the last. Since

- deflation (negative percentage

This sheet has annual CPI from 1790. You can update to the latest year with FRED (CPIAUCSL) or from the source web site i

Source: Panes are frozen; unfreeze panes if needed.

Lawrence H. Officer and Samuel H. Williamson, "The Annual Consumer Price Index for the United States, 1774-2012," Measu
www.measuringworth.com/uscpi/ In 1885, the US Postal Service charged 2 cents to deliver a one
letter in the United States. In 2013, a first-class stamp cost 46
for a stamp expensive compared to historical US stamp price

Year CPI %Change Stamp Price Obviously, prices of all goods have increased since 1885 so say
prices have exploded by 2200% (=(46 - 2)/2) is not very useful.
1790 8.86 #N/A price of a stamp in 1885 to the price of a stamp today you hav
1791 9.1 2.7% the prices before comparing them. Economists do this by usin
1792 9.27 1.9%
A price index shows price levels in different time periods relati
1793 9.59 3.5% If the price index in year T is 124, then prices in year T are 24%
1794 10.64 10.9% were in the base year. One can also compare prices in any two
1795 12.17 14.4% calculating the percentage change in the price index between
The CPI data in column B show that prices rose by 10.9% (=(10
1796 12.81 5.3% from 1793 to 1794. That is inflation and prices are rising rapidl
1797 12.33 -3.7% see deflation (negative percentage changes) quite often in colu
1798 11.92 -3.3% down to the end of the data to see a chart of US inflation perfo
1790 to 2012.
1799 11.92 0.0%
1800 12.17 2.1%
1801 12.33 1.3%
1802 10.39 -15.7%
1803 10.96 5.5%
1804 11.44 4.4%
1805 11.36 -0.7%
1806 11.84 4.2%
1807 11.2 -5.4%
1808 12.17 8.7%
1809 11.92 -2.1%
1810 11.92 0.0%
1811 12.73 6.8%
1812 12.89 1.3%
1813 15.47 20.0%
1814 17 9.9%
1815 14.91 -12.3%
1816 13.62 -8.7%
1817 12.89 -5.4%
1818 12.33 -4.3%
1819 12.33 0.0%
1820 11.36 -7.9%
1821 10.96 -3.5%
1822 11.36 3.6%
1823 10.15 -10.7%
1824 9.35 -7.9%
1825 9.59 2.6%
1826 9.59 0.0%
1827 9.67 0.8%
1828 9.19 -5.0%
1829 9.02 -1.8%
1830 8.94 -0.9%
1831 8.38 -6.3%
1832 8.3 -1.0%
1833 8.14 -1.9%
1834 8.3 2.0%
1835 8.54 2.9%
1836 9.02 5.6%
1837 9.27 2.8%
1838 9.02 -2.7%
1839 9.02 0.0%
1840 8.38 -7.1%
1841 8.46 1.0%
1842 7.9 -6.6%
1843 7.17 -9.2%
1844 7.25 1.1%
1845 7.33 1.1%
1846 7.41 1.1%
1847 7.98 7.7%
1848 7.65 -4.1%
1849 7.41 -3.1%
1850 7.57 2.2%
1851 7.41 -2.1%
1852 7.49 1.1%
1853 7.49 0.0%
1854 8.14 8.7%
1855 8.38 2.9%
1856 8.22 -1.9%
1857 8.46 2.9%
1858 7.98 -5.7%
1859 8.06 1.0%
1860 8.06 0.0%
1861 8.54 6.0%
1862 9.75 14.2%
1863 12.17 24.8%
1864 15.23 25.1%
1865 15.79 3.7%
1866 15.39 -2.5%
1867 14.34 -6.8%
1868 13.78 -3.9%
1869 13.21 -4.1%
1870 12.65 -4.2%
1871 11.84 -6.4%
1872 11.84 0.0%
1873 11.6 -2.0%
1874 11.04 -4.8%
1875 10.64 -3.6%
1876 10.39 -2.3%
1877 10.15 -2.3%
1878 9.67 -4.7%
1879 9.67 0.0%
1880 9.91 2.5%
1881 9.91 0.0%
1882 9.91 0.0%
1883 9.71 -2.0%
1884 9.51 -2.1%
1885 9.32 -2.0% $ 0.02
1886 9.12 -2.1% $ 0.02
1887 9.22 1.1% $ 0.02
1888 9.22 0.0% $ 0.02
1889 8.92 -3.3% $ 0.02
1890 8.82 -1.1% $ 0.02
1891 8.82 0.0% $ 0.02
1892 8.82 0.0% $ 0.02
1893 8.72 -1.1% $ 0.02
1894 8.34 -4.4% $ 0.02
1895 8.14 -2.4% $ 0.02
1896 8.14 0.0% $ 0.02
1897 8.04 -1.2% $ 0.02
1898 8.04 0.0% $ 0.02
1899 8.04 0.0% $ 0.02
1900 8.14 1.2% $ 0.02
1901 8.24 1.2% $ 0.02
1902 8.34 1.2% $ 0.02
1903 8.53 2.3% $ 0.02
1904 8.63 1.2% $ 0.02
1905 8.53 -1.2% $ 0.02
1906 8.72 2.2% $ 0.02
1907 9.11 4.5% $ 0.02
1908 8.92 -2.1% $ 0.02
1909 8.82 -1.1% $ 0.02
1910 9.21 4.4% $ 0.02
1911 9.21 0.0% $ 0.02
1912 9.4 2.1% $ 0.02
1913 9.6 2.1% $ 0.02
1914 9.69 0.9% $ 0.02
1915 9.74 0.5% $ 0.02
1916 10.64 9.2% $ 0.02
1917 12.82 20.5% $ 0.03
1918 15.06 17.5% $ 0.03
1919 17.3 14.9% $ 0.02
1920 20.04 15.8% $ 0.02
1921 17.9 -10.7% $ 0.02
1922 16.77 -6.3% $ 0.02
1923 17.07 1.8% $ 0.02
1924 17.1 0.2% $ 0.02
1925 17.53 2.5% $ 0.02
1926 17.7 1.0% $ 0.02
1927 17.37 -1.9% $ 0.02
1928 17.13 -1.4% $ 0.02
1929 17.13 0.0% $ 0.02
1930 16.7 -2.5% $ 0.02
1931 15.23 -8.8% $ 0.02
1932 13.66 -10.3% $ 0.03
1933 12.96 -5.1% $ 0.03
1934 13.39 3.3% $ 0.03
1935 13.73 2.5% $ 0.03
1936 13.86 0.9% $ 0.03
1937 14.36 3.6% $ 0.03
1938 14.09 -1.9% $ 0.03
1939 13.89 -1.4% $ 0.03
1940 14.03 1.0% $ 0.03
1941 14.73 5.0% $ 0.03
1942 16.3 10.7% $ 0.03
1943 17.3 6.1% $ 0.03
1944 17.6 1.7% $ 0.03
1945 18 2.3% $ 0.03
1946 19.54 8.6% $ 0.03
1947 22.34 14.3% $ 0.03
1948 24.08 7.8% $ 0.03
1949 23.85 -1.0% $ 0.03
1950 24.08 1.0% $ 0.03
1951 25.98 7.9% $ 0.03
1952 26.55 2.2% $ 0.03
1953 26.75 0.8% $ 0.03
1954 26.88 0.5% $ 0.03
1955 26.78 -0.4% $ 0.03
1956 27.18 1.5% $ 0.03
1957 28.15 3.6% $ 0.03
1958 28.92 2.7% $ 0.04
1959 29.16 0.8% $ 0.04
1960 29.62 1.6% $ 0.04
1961 29.92 1.0% $ 0.04
1962 30.26 1.1% $ 0.04
1963 30.62 1.2% $ 0.05
1964 31.03 1.3% $ 0.05
1965 31.56 1.7% $ 0.05
1966 32.46 2.9% $ 0.05
1967 33.4 2.9% $ 0.05
1968 34.8 4.2% $ 0.06
1969 36.67 5.4% $ 0.06
1970 38.84 5.9% $ 0.06
1971 40.51 4.3% $ 0.08
1972 41.85 3.3% $ 0.08
1973 44.45 6.2% $ 0.08
1974 49.33 11.0% $ 0.10
1975 53.84 9.1% $ 0.10
1976 56.94 5.8% $ 0.13
1977 60.61 6.4% $ 0.13
1978 65.22 7.6% $ 0.15
1979 72.57 11.3% $ 0.15
1980 82.38 13.5% $ 0.15
1981 90.93 10.4% $ 0.18
1982 96.5 6.1% $ 0.20
1983 99.6 3.2% $ 0.20
1984 103.9 4.3% $ 0.20
1985 107.6 3.6% $ 0.22
1986 109.6 1.9% $ 0.22
1987 113.6 3.6% $ 0.22
1988 118.3 4.1% $ 0.25
1989 124 4.8% $ 0.25
1990 130.7 5.4% $ 0.25
1991 136.2 4.2% $ 0.29
1992 140.3 3.0% $ 0.29
1993 144.5 3.0% $ 0.29
1994 148.2 2.6% $ 0.29
1995 152.4 2.8% $ 0.32
1996 156.9 3.0% $ 0.32
1997 160.5 2.3% $ 0.32
1998 163 1.6% $ 0.32
1999 166.6 2.2% $ 0.33
2000 172.2 3.4% $ 0.33
2001 177.1 2.8% $ 0.34
2002 179.9 1.6% $ 0.37
2003 184 2.3% $ 0.37
2004 188.9 2.7% $ 0.37
2005 195.3 3.4% $ 0.37
2006 201.6 3.2% $ 0.39
 2007 207.34 2.8% $ 0.41
2008 215.3 3.8% $ 0.42
2009 214.54 -0.4% $ 0.44
2010 218.06 1.6% $ 0.44
2011 224.94 3.2% $ 0.44
2012 229.59 2.1% $ 0.45
2013 $ 0.46

A Long View of US Inflation Performance

30.0%
Annual %Change in US CPI from 1790 to 2012 Notice the epsiodes of great
25.0% variability, greater than +/- 10%, in
prices.
20.0%
The last era of high inflation in the US
15.0% was the 1970s.
10.0%
Before World War II, the US suffered
5.0% severe bouts of deflation.

0.0% The current climate is one of relative

1790 1840 1890 1940 1990 price stability.
-5.0%
-10.0%

-15.0%

-20.0%
 L) or from the source web site in cell A5.

nited States, 1774-2012," MeasuringWorth, 2013.

charged 2 cents to deliver a one-ounce, first-class
2013, a first-class stamp cost 46 cents. Is 46 cents
red to historical US stamp prices?

ave increased since 1885 so saying that stamp

% (=(46 - 2)/2) is not very useful. To compare the
price of a stamp today you have to standardize
hem. Economists do this by using a price index.

s in different time periods relative to a base year.

24, then prices in year T are 24% higher than they
n also compare prices in any two years by
nge in the price index between the two years.
that prices rose by 10.9% (=(10.64 - 9.59)/9.59)
ation and prices are rising rapidly. You can also
tage changes) quite often in column C. Scroll
o see a chart of US inflation performance from
he epsiodes of great
ty, greater than +/- 10%, in

era of high inflation in the US

1970s.

World War II, the US suffered

bouts of deflation.

rent climate is one of relative

ability.
The table at the link below can be hard to read. The footnotes exp
1966 laws extended coverage to other jobs.
This means there are many ways to create a min wage series.
A reasonable option is to stick with the 1938 definition of coverag
table) and use this "basic federal min wage" as the nominal series

www.dol.gov/whd/minwage/chart.htm
Minimum Wage
$ 0.25
$ 0.30
$ 0.30
$ 0.30
$ 0.30
$ 0.30
$ 0.30
$ 0.40
$ 0.40
$ 0.40
$ 0.40
$ 0.40
$ 0.75
$ 0.75
$ 0.75
$ 0.75
$ 0.75
$ 0.75
$ 1.00
$ 1.00
$ 1.00
$ 1.00
$ 1.00
$ 1.15
$ 1.15
$ 1.25
$ 1.25
$ 1.25
$ 1.25
$ 1.40
$ 1.60
$ 1.60
$ 1.60
$ 1.60
$ 1.60
$ 1.60
$ 2.00
$ 2.10
$ 2.30
$ 2.30
$ 2.65
$ 2.90
$ 3.10
$ 3.35
$ 3.35
$ 3.35
$ 3.35
$ 3.35
$ 3.35
$ 3.35
$ 3.35
$ 3.35
$ 3.80
$ 4.25
$ 4.25
$ 4.25
$ 4.25
$ 4.25
$ 4.75
$ 5.15
$ 5.15
$ 5.15
$ 5.15
$ 5.15
$ 5.15
$ 5.15
$ 5.15
$ 5.15
$ 5.15
$ 5.85
$ 6.55
$ 7.25
$ 7.25
$ 7.25
$ 7.25
$ 7.25
be hard to read. The footnotes explain that the 1961 and
o other jobs.
s to create a min wage series.
with the 1938 definition of coverage (the first column in the
l min wage" as the nominal series.