Saturday, June 25, 2011

Core versus headline inflation

there is so much talk about core and headline inflation by policymakers, but the actual data suggests that many miss some key points. Over the long-run, headline inflation continues to move higher than core. If the headline inflation is volatile and represents only temporary swings in price, it should move around the core. This does not happen. The core underestimates the actual future inflation. Second, headline inflation has continues to go up even when there has been significant declines in housing prices and other asset prices. Inflation does not account for asset price changes.

Inflation numbers have always been flawed and have limits so it is hard to argue that the key is looking at core over headline inflation. We need multiple measures of price changes.

No comments: