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Reader Erik Poole suggests utilizing the Hamilton filter as an alternative of the Hodrick-Prescott filter, in assessing how a lot the CPI deviated from pattern (recall, i noted that the CPI rose 2% vs trend at the same time as oil prices were elevated, before and after the expanded Russian invasion of Ukraine). I’m (greater than) completely happy to oblige.
Determine 1: Oil worth (Brent), $/bbl (blue, left scale), and CPI deviation from pattern (Hamilton filter) (tan, proper scale). NBER outlined peak-to-trough recession dates shaded grey. Supply: EIA, BLS by way of FRED, NBER, and creator’s calculations.
I carried out the Hamilton filter with h=24, p=12. The HP cyclical element rose 2.1% from November 2011 to June 2022, whereas the Hamilton filter signifies a 7.7% improve. That is according to my conjecture that on the whole, estimated cyclical parts have been bigger for most common US macro sequence.
Clearly, correlation just isn’t causation; particularly, a joint issue is that elevated oil costs are related to elevated combination demand, which itself (within the context of fastened or depressed combination provide) would elevate costs by way of the easy Phillips Curve. Nevertheless, I feel all would agree a minimum of a big share of the vitality element of CPI-all is related to cost-push inflationary pressures.
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