2. The next set of problems concern Honolulu inflation and expenditures shares. Definitions: Let xt = any variable x at time period t; for instance x could be the Honolulu Consumer Price Index for All Urban Consumers (CPI-U) in first half 2010 (t).

Data on the Honolulu CPI-U, and those of other western U.S. cities, are on the BLS regional web site athttps://data.bls.gov/cgi-bin/surveymost?r9 , (click on the blue-highlighted .xlsx link to download an Excel worksheet) and are included in the posted spreadsheet.

(a) From the annual data, calculate simple percent changesthe annual percentage changesin the Honolulu CPI-U for the years 2010-2016. This is Honolulus inflation rate for each year. Most recently was inflation higher, or lower, or about the same?

(b) The policy goal of the Federal Open Market Committee (FOMC) of the Federal Reserve Bank (https://www.federalreserve.gov/monetarypolicy/fomc.htm) is 2 percent inflation in the U.S. personal consumption expenditure (PCE) deflator, which is consistent with 2.5 percent inflation in the Honolulu CPI-U. Based on your calculations of the Honolulu inflation rate for 2010 (e.g. 2.1 percent) and 2012 (2.4) percent, was Honolulu inflation substantially below, fairly close to, or way above the Feds effective goal?

(c) Global petroleum prices doubled, roughly, in 2011 at a time of geopolitical turbulence following North African uprisings sometimes called the Arab Spring. An ensuing surge of petroleum reserves from exploratory discoveries worldwide was induced by the higher oil prices. This potential glut of oil then led to a collapse of petroleum prices at 3 the very end of 2014; prices fell by half. Explain from your calculations how 2011 and 2015 Honolulu inflation rates are consistent with these events, which reversed one other.

(d) Calculate the compound rate of change of the CPI-U for Honolulu between first half 2016 and second half 2016. This is Honolulus most recent annualized inflation rate.

(e) The CPI-U is a weighted index of prices in expenditure categories such as food, clothing, and shelter. Weights are taken from consumer expenditure survey (table in posted in the Econ 311 Inflation slideshow). Combining utilities, fuels, and public services, with gasoline and motor oil to make a fuel cost share to compare to the shelter cost share, which has a bigger impact on overall Honolulu inflation, changes in residential rents or changes in fuel costs? Why.

(Simple rate of change) %Ax 1 x 100 percent change in x or, inflation where n number of periods in one year (2 halves, 4 quarters, 12 months, etc.). The year-over-year percent change in the Honolulu CPI-U would compare the CPI-U value for one half of a year (x and the CPI-U lue for the same half, one year earlier (two halves ago) t-2 i.e. n 2 in this instance.) 2, Compound rate of change) 1 x 100 x-hat' where N number of periods in a year (2 halves, 4 quarters, and n number of periods between comparison dates. (By compounding, change is expressed at an annualized percentage rate, for example, as if the same rate of increase persisted during the second half of a year that was observed in the first half of that year.)