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Core inflation

AnalyticsTrade Team
AnalyticsTrade Team Last updated on 26 Apr 2023

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Core Inflation

Core inflation is a measure of inflation that excludes certain volatile items such as food and energy prices. It is used to measure underlying inflation trends in the economy and is considered to be a more reliable indicator of future inflation than the overall inflation rate. Core inflation is used by central banks and governments to set monetary policy and to make economic decisions.

History of Core Inflation

The concept of core inflation was first developed in the late 1960s by economists at the Federal Reserve Bank of St. Louis. They argued that the traditional measure of inflation, the Consumer Price Index (CPI), was too volatile and did not accurately reflect underlying inflation trends. To address this, they proposed excluding certain volatile items such as food and energy prices from the CPI calculation. This new measure, which they called the โ€œcore CPIโ€, was adopted by the Federal Reserve in the 1970s and has since become the standard measure of inflation in the United States.

Comparison of Core Inflation and Overall Inflation

Measure Core Inflation Overall Inflation
Volatility Low High
Reliability High Low
Items Included Excludes volatile items Includes all items

Summary

Core inflation is a measure of inflation that excludes certain volatile items such as food and energy prices. It is used to measure underlying inflation trends in the economy and is considered to be a more reliable indicator of future inflation than the overall inflation rate. For more information about core inflation, you can visit the websites of the Federal Reserve Bank of St. Louis, the Bureau of Labor Statistics, and the International Monetary Fund.

See Also

  • Consumer Price Index (CPI)
  • Producer Price Index (PPI)
  • Inflation Rate
  • Monetary Policy
  • Gross Domestic Product (GDP)
  • Interest Rates
  • Exchange Rates
  • Unemployment Rate
  • Gross National Product (GNP)
  • Real GDP

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