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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 …



FAQ


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."

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.

What does "core" mean?

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

How can you calculate core from consumer price index (CPI)?

Why are commodity prices so volatile?

How do you calculate CPI from wholesale price index (WPI)?

Why is WPI not used for calculating CPI?

What does "underlying" mean?

Is there any difference between Core Inflation rate & Headline Inflation rate ?

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