Core inflation
Core inflation is a national economic approach to measuring inflation, which does not consider the changes in prices of certain goods. Core inflation excludes the prices of food and energy sectors, from the calculation, as these are subject to fluctuations to a greater extent, the causes are not found within this economy.
There is no single model of a core inflation rate. Partial tobacco products and products with administered prices (eg " core inflation rate of 2 " of the Federal Office of Statistics) are excluded from the cart additionally.
Reasons for the use of a core inflation
When selecting the basket of goods used to calculate inflation is usually attempted to define a representative cart to describe the effect of inflation as possible. In Europe this the harmonized index of consumer prices (HICP ) is used.
Individual aspects of inflation can not be with such index, however, constitute appropriate:
Seasonal variations
A number of product prices fluctuate seasonally. This is particularly the case with foodstuffs. This seasonal effect is superimposed on the "real" inflation rate ( " headline inflation "). To eliminate this effect, there are two possibilities:
- Smoothing averages ( at the price that changes in the inflation rate only delayed and attenuated be shown )
- Removing the food from the basket (the concept of core inflation)
According to a study by the Federal Reserve Bank of New York, the concept of core inflation is better suited to measure the "true " rate of inflation, as the use of moving averages.
Fluctuations in energy prices
The prices of (mostly imported ) fuels ( mainly crude oil, natural gas and coal) are also very volatile. In addition, these rates over the production chain have an impact on the prices of other goods in the course of a few quarters.
Also this effect can best be corrected by the failure to take account of the energy costs in your shopping cart.
In particular, the impact of external price shocks (eg oil crisis ) is easier to describe by this measure.
Criticism of this approach, however, therefore practiced, because price increases in both energy as well as food not only be triggered by short-term external shocks or fluctuations, but - especially in recent years - corresponding to a long-term trend. Core inflation is not taken into account this effect, although a high percentage of the output volume of the citizens for energy and food is spent.
Use and interpretation
Eurostat regularly calculates core inflation as an adjustment for the energy and food components HICP. This is used by the ECB as an indicator in the determination of monetary policy.
In Switzerland, the Swiss National Bank uses a core inflation rate as inflation excluding food, beverages, tobacco, seasonal products, energy and fuel.
The use of core inflation by the central banks is based on the assumption that temporary external price shocks and seasonal fluctuations should not affect the decision on monetary policy.
However, for the ECB, the development of the HICP core inflation and not the decisive scale. Due to possible second-round effects and external price shocks are likely to have lasting effects on inflation.
History
The model of core inflation as a price index excluding food and energy was first described in 1975 by Robert J. Gordon. It is the most widely used definition of core inflation.