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Headline Inflation

Definition

Headline inflation is a measure of the total inflation within an economy, including commodities such as food and energy prices, which tend to be much more volatile and prone to inflationary spikes. On the other hand, "core inflation" is calculated from a price index minus the volatile food and energy components. Headline inflation may not present an accurate picture of an economy's inflationary trend since sector-specific inflationary spikes are unlikely to persist.

What is 'Headline Inflation'

Headline inflation is the raw inflation figure as reported through the Consumer Price Index (CPI) that is released monthly by the Bureau of Labor Statistics. The CPI calculates the cost to purchase a fixed basket of goods, as a way of determining how much inflation is occurring in the broad economy. The CPI uses a base year and indexes the current year's prices according to the base year's values.

Explaining 'Headline Inflation'

As it includes all aspects within an economy that experience inflation, headline inflation is not adjusted to remove highly volatile figures, including those that can shift regardless of economic conditions. Often, headline inflation is closely related to shifts in the cost of living, which provides useful information to consumers within the marketplace.

Negatives of Rising Inflation

Inflation is a threat to long-term investors because it erodes the value of future dollars, can stifle economic growth, and can cause a rise in prevailing interest rates. While headline inflation tends to get the most attention in the media, core inflation is often considered the more valuable metric to follow. Both headline and core results are followed closely by investors, and are also used by economists and central banking figures to set economic growth forecasts and monetary policy.

Core Inflation

Core inflation removes the CPI components that can exhibit large amounts of volatility from month to month, which can cause unwanted distortion to the headline figure. The most commonly removed factors are those relating to the cost of food and energy. Food prices can be affected by factors outside of those attributed to the economy, such as environmental shifts that cause issues in the growth of crops. Energy costs, such as oil production, can be affected by forces outside of traditional supply and demand, such as political dissent.


Further Reading


Price level convergence and inflation in Europe
papers.ssrn.com [PDF]
… Page 9. 9 Figure 1 Euro area headline inflation rates … 97-5. Marcus Noland, Sherman Robinson, and Li-Gang Liu, “The Economics of Korean Unification” No … Kenneth N. Kuttner and Adam S. Posen, “Does Talk Matter After All? Inflation Targeting and Central Bank Behavior” No …

Optimal price indices for targeting inflation under incomplete marketsOptimal price indices for targeting inflation under incomplete markets
www.nber.org [PDF]
… Page 9. 9 Figure 1 Euro area headline inflation rates … 97-5. Marcus Noland, Sherman Robinson, and Li-Gang Liu, “The Economics of Korean Unification” No … Kenneth N. Kuttner and Adam S. Posen, “Does Talk Matter After All? Inflation Targeting and Central Bank Behavior” No …

Monetary credibility, inflation, and economic growthMonetary credibility, inflation, and economic growth
heinonline.org [PDF]
… Page 9. 9 Figure 1 Euro area headline inflation rates … 97-5. Marcus Noland, Sherman Robinson, and Li-Gang Liu, “The Economics of Korean Unification” No … Kenneth N. Kuttner and Adam S. Posen, “Does Talk Matter After All? Inflation Targeting and Central Bank Behavior” No …

Inflation targeting in ChileInflation targeting in Chile
www.sciencedirect.com [PDF]
… Page 9. 9 Figure 1 Euro area headline inflation rates … 97-5. Marcus Noland, Sherman Robinson, and Li-Gang Liu, “The Economics of Korean Unification” No … Kenneth N. Kuttner and Adam S. Posen, “Does Talk Matter After All? Inflation Targeting and Central Bank Behavior” No …

Commodity prices and inflation dynamicsCommodity prices and inflation dynamics
papers.ssrn.com [PDF]
… Page 9. 9 Figure 1 Euro area headline inflation rates … 97-5. Marcus Noland, Sherman Robinson, and Li-Gang Liu, “The Economics of Korean Unification” No … Kenneth N. Kuttner and Adam S. Posen, “Does Talk Matter After All? Inflation Targeting and Central Bank Behavior” No …

A time-series approach to test a change in inflation persistence: the Mexican experienceA time-series approach to test a change in inflation persistence: the Mexican experience
www.tandfonline.com [PDF]
… Page 9. 9 Figure 1 Euro area headline inflation rates … 97-5. Marcus Noland, Sherman Robinson, and Li-Gang Liu, “The Economics of Korean Unification” No … Kenneth N. Kuttner and Adam S. Posen, “Does Talk Matter After All? Inflation Targeting and Central Bank Behavior” No …



Q&A About Headline Inflation


What do economists use core data for?

Economists use core data to forecast future economic performance based on changes in consumer behavior and spending habits over time. They also use this information to set monetary policy and determine interest rates at which banks lend money to each other overnight or longer term loans are made between financial institutions . In addition, central bankers may look at core measures when deciding whether or not they should raise interest rates . This helps them keep price stability so that people aren't affected by sudden spikes in costs due to unstable factors outside their control . For example , if there were a drought affecting food production , then food prices would rise sharply causing overall prices to increase even without any underlying change in supply or demand . Central bankers could choose not to raise interest rates because they don't want people who

What can you learn from headline figures about the cost of living?

You can learn useful information about what consumers are paying for goods and services in their day-to-day lives.

Is headline inflation adjusted for volatility?

No, it isn't adjusted for volatility.

What does "core" mean?

""Core"" means non-food manufacturing or underlying.

Who has a mandate that spells out their inflation goals in terms of headline inflation?

The European Central Bank and the Bank of England have mandates that spell out their inflation goals in terms of headline inflation. India also focuses on headline inflation.

How often does core data get released?

Core data gets released every month with other economic indicators such as GDP growth rates and unemployment levels.

Does headline inflation include all aspects within an economy that experience inflation?

Yes, it does include all aspects within an economy that experience inflation.

What is the definition of headline inflation?

""Headline Inflation" is a measure of the total inflation within an economy, including commodities such as food and energy prices (e.g., oil and gasoline), which tend to be much more volatile and prone to inflationary spikes."