What Should Core Inflation Exclude?

40 Pages Posted: 19 Dec 2012

See all articles by Alan K. Detmeister

Alan K. Detmeister

Board of Governors of the Federal Reserve System

Date Written: June 7, 2012

Abstract

Consumer price inflation excluding food and energy often performs worse than other measures of underlying inflation in out-of-sample tests of predicting future inflation or tracking an ex-post measure of underlying trend inflation. Nonetheless, inflation excluding food and energy remains popular for its simplicity and transparency. Would excluding different items improve performance while maintaining the simplicity and transparency? Unfortunately, probably not. Averaging across a series of tests suggests that knowing what items to exclude before seeing the data is problematic and excluding food and energy is not a bad ex-ante guess. However, ex-post it is not difficult to construct an index which performs considerably better than excluding food and energy.

Keywords: inflation, price level, core inflation

JEL Classification: E31

Suggested Citation

Detmeister, Alan K., What Should Core Inflation Exclude? (June 7, 2012). FEDS Working Paper No. 2012-43, Available at SSRN: https://ssrn.com/abstract=2191268 or http://dx.doi.org/10.2139/ssrn.2191268

Alan K. Detmeister (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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