Mark Gongloff and Scott Patterson in the Wall Street Journal proclaim, "Many economists and Federal Reserve officials like to dismiss energy and food prices when reading inflation statistics because the two sectors are volatile. But it is time to dismiss that practice." The inflation you and I suffer from when we pay higher prices is called "headline inflation." Economists hope to find the underlying trend by eliminating the prices that jump around the most. To achieve that goal they subtract food prices and energy prices from the consumer price index and another more comprehensive index called the personal consumption price deflator. When inflation is measured by these bowdlerized indices, it is labeled "core inflation."
The problem with core inflation is that it excludes prices that are sometimes leading indicators of future inflation.
Friday, March 14, 2008
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