However, the price statistics have been unusually difficult to interpret lately. We are seeing a lot of extremes within the Consumer Price Index. Prices of some items in the index are rising at rates of 10 percent or more, while prices of other items are falling by more than 10 percent. Very few prices are increasing at the relatively low rates consistent with price stability. With so much price dispersion, it is difficult to know where the inflation trend will settle out.

We live in a world where the prices of some goods and services move in different directions and at different rates. The challenge for monetary policy makers is to look at this complex and changing picture of price changes and try to gauge the forces that are operating on underlying inflation and so judge the likely future path of overall inflation.