UPSC Prelims Practice Questions — US ‘transitory’ inflation turns 5, is still a big brat

Q1. With reference to the distinction between the PCE Price Index and the Consumer Price Index (CPI) in the United States, consider the following statements: 1. The PCE Price Index, not the CPI, is the Federal Reserve's preferred gauge for its longer-run 2 percent inflation target. 2. The PCE updates its expenditure weights more frequently than the CPI, which generally results in PCE inflation readings running lower than CPI readings. 3. Unlike the CPI, the PCE Price Index is compiled by the US Bureau of Labor Statistics. Which of the statements given above is/are correct?

  1. The PCE Price Index, not the CPI, is the Federal Reserve's preferred gauge for its longer-run 2 percent inflation target.
  2. The PCE updates its expenditure weights more frequently than the CPI, which generally results in PCE inflation readings running lower than CPI readings.
  3. Unlike the CPI, the PCE Price Index is compiled by the US Bureau of Labor Statistics.
  • A. 1 only
  • B. 1 and 2 only
  • C. 2 and 3 only
  • D. 1, 2 and 3

Q2. Which of the following US federal agencies compiles and releases the Personal Consumption Expenditures (PCE) Price Index, the inflation gauge the Federal Reserve uses to define its 2 percent longer-run target?

  • A. Bureau of Labor Statistics (BLS), Department of Labor
  • B. Bureau of Economic Analysis (BEA), Department of Commerce
  • C. Board of Governors of the Federal Reserve System
  • D. US Census Bureau, Department of Commerce

Q3. During the post-pandemic US inflation surge that the Federal Reserve initially called 'transitory', what was the peak year-on-year headline Consumer Price Index (CPI) reading — the highest 12-month CPI increase recorded in the United States since the early 1980s?

  • A. 7.0 per cent (December 2021)
  • B. 8.5 per cent (March 2022)
  • C. 9.1 per cent (June 2022)
  • D. 10.4 per cent (September 2022)

Q4. The Federal Reserve's longer-run inflation objective of exactly 2 percent, measured solely by the annual change in the Personal Consumption Expenditures (PCE) Price Index, was first formally adopted in its 'Statement on Longer-Run Goals and Monetary Policy Strategy' in the year:

  • A. 2008
  • B. 2012
  • C. 2020
  • D. 2022
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