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Drilling Down into Core Inflation: Goods versus Services

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  • M. Henry Linder
  • Richard Peach
  • Robert W. Rich

Abstract

Among the measures of core inflation used to monitor the inflation outlook, the series excluding food and energy prices is probably the best known and most closely followed by policymakers and the public. While the conventional ?ex food and energy? measure is a composite of the price changes of a large number of different products and services, almost all models developed to explain and forecast its behavior do not distinguish between the goods and services categories. Is the distinction important? Here, we highlight the different behavior and determinants of goods inflation and services inflation and suggest, based on preliminary analysis, that we can improve the forecast accuracy of this conventional core inflation measure by combining separate inflation forecasts of the two categories.

Suggested Citation

  • M. Henry Linder & Richard Peach & Robert W. Rich, 2013. "Drilling Down into Core Inflation: Goods versus Services," Liberty Street Economics 20130605, Federal Reserve Bank of New York.
  • Handle: RePEc:fip:fednls:86875
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    Keywords

    Services Inflation; Goods Inflation; Core Inflation; Phillips curve;

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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