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Comparing measures of core inflation

  • Todd E. Clark

Although many policymakers and analysts associate “core CPI inflation” with the CPI excluding food and energy, there are other measures of core consumer price inflation. Like the CPI excluding food and energy, these other measures typically attempt to identify the underlying trend in CPI inflation by excluding certain components subject to large relative price changes. The rationale is that unusual changes, such as the 14.2 percent increase in energy prices last year (December to December) or the 18 percent jump in tobacco prices from November to December 1998, are unlikely to be related to the underlying trend in CPI inflation.> Clark compares five different measures of core CPI inflation. He reviews the concepts underlying the idea of core inflation and the measures examined in the article. Three of the core measures have been developed in previous research, while two indicators are developed in the article. Next, he evaluates the core inflation measures by three different criteria: accuracy in tracking trend inflation, predictive content for future overall inflation, and complexity.

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Article provided by Federal Reserve Bank of Kansas City in its journal Economic Review.

Volume (Year): (2001)
Issue (Month): Q II ()
Pages: 5-31

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Handle: RePEc:fip:fedker:y:2001:i:qii:p:5-31:n:v.86no.2
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