D20.3 [Using CPI data and Excel to calculate an alternative measure of the inflation rate] In addition to the usual CPI, the BLS also calculates a CPI that does not include the prices of food and energy. Because the prices of food and energy tend to fluctuate more than other prices, some economists believe that omitting them provides a better measure of the long-run inflation rate. Go to the Web site f the Federal Reserve Bank of St. Louis (FRED) (research .stlouisfed.org/fred2/).

a. Locate the data for the Consumer Price Index (CPIAUCSL) and the Consumer Price Index less Food and

Energy (CPILFESL). Click on the “Download Data” link on the left of the page. Change the beginning date

to 2006-07-01. You can leave the ending date as it is. Then click on the “Download Data” button to download

the data and save it to your computer. Finally, open the Excel file that you just downloaded. (Note: You can also use another compatible spreadsheet program, such as OpenOffice.)

b. Using Excel, calculate the percentage change in each CPI index from a year ago for each of the observations, beginning with the observation 2007-07-01. To make this calculation, click on the blank cell next to the observation  corresponding to 2007-07-01, and then enter the following formula (note that in Excel, the symbol for multiplication is *):

Where t-1 = 2007-07-01 and t = 2006-07-01. Repeat this process for the remaining observations. (You can

use the copy and paste functions to avoid having to retype the formula.)

c. Using your calculations from part (b), create a graph of the percentage changes from a year ago for both indexes. Make sure both data lines are on the same graph.

d. Discuss differences between the two measures of the inflation rate. For instance, from your calculations,

what was the inflation rate in June 2009 using the two CPI measures?