Core inflation
From Wikipedia, the free encyclopedia
Core inflation is a measure of inflation which excludes certain items that face volatile price movements.
The usual measure of inflation in the United States is the Consumer Price Index. This index tends to change more on a month to month basis than does "core inflation". This is because core inflation eliminates products that can have temporary price shocks (i.e. energy, food products). Core inflation is thus intended to be an indicator and predictor of underlying long-term inflation.
The concept of core inflation as aggregate price growth excluding food and energy was introduced in a 1975 paper by Robert J. Gordon. This is the definition of "core inflation" most used for political purposes.
Analysis by the Federal Reserve Bank of New York indicates that this measure is no better than a moving average of the Consumer Price Index as a predictor of inflation.
[edit] References
- Gordon, Robert J. (1975). "Alternative Responses of Policy to External Supply Shocks". Brookings Papers on Economic Activity 6 (3): 183-206.
- Robert Rich, Charles Steindel (2005). "A Review of Core Inflation and an Evaluation of Its Measures (Staff Report, Federal Reserve Bank of New York)".
