Core inflation is a measure of inflation that excludes the prices of goods and services that are considered volatile or subject to temporary price fluctuations, such as food and energy prices. This is done to provide a clearer picture of the underlying trend in inflation, as the prices of food and energy can be influenced by factors that are not related to broader economic conditions, such as weather events or geopolitical tensions.
By excluding food and energy prices, core inflation is seen as a more stable measure of inflation that is less affected by short-term fluctuations in prices. This can be useful for policymakers when making decisions related to monetary policy, as it allows them to focus on the underlying trend in inflation rather than short-term fluctuations.
Core inflation is typically measured using the Consumer Price Index (CPI), which is a measure of the average change over time in the prices paid by consumers for a basket of goods and services. The core CPI is calculated by removing food and energy prices from the overall CPI. Other measures of core inflation include the Personal Consumption Expenditures (PCE) Price Index, which is the Federal Reserve’s preferred measure of inflation.
Overall, core inflation is an important measure of inflation that can provide insights into the underlying trends in prices and help policymakers make informed decisions about monetary policy
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