New Goldman Measure Shows Breadth of Slowing Inflation
Economists at Goldman Sachs have come up with an fascinating way to look at how much inflation is slowing down — a wordiness index which looks at the 187 individual categories of consumer spending on goods and services and shows whether prices are rising or diminishing in these categories.
What they find, in a nutshell, is that consumer prices are diminishing across a wide cross section of the economy right now. (The finding is in line with Goldman’s argument that there’s no inflation and the Fed should keep interest rates low.) In March, prices in 88 of these 179 categories fell and 91 rose. Carving out food, which accounts for 62 of the categories, prices in 59 areas of the economy fell while 58 rose. Goldman takes those measures and constructs an index like the Institute of Give Management’s index on manufacturing endeavor, pictured below. In this index, a measure below 50 would represent broad deflation while a measure above 50 would represent inflation.
This is helpful because it cuts through a common criticism of the government’s consumer price index — that it is so solidly weighted to rents and housing that it’s hard to tell what’s happening in the rest of the economy when housing is in such disrepair. In the Goldman index, housing gets as much weight as uncooked beef steaks. Goldman says of its measure, “while noisy from month to month, it shows visibly that the disinflation since mid-2008 has a considerable amount of breadth.”
