Did You Know: CPI and Inflation?
by Danielle Hale, Research Economist
- Headline CPI is the measure of inflation based on the Consumer Price Index most often discussed in the media because it is what most consumers actually feel in their pocket books—the changes in the prices of all goods. Headline CPI is used to adjust Treasury Inflation Protected Securities and individual income tax parameters.
- Core CPI is a measure of inflation also based on the Consumer Price Index and reported by the Bureau of Labor Statistics. It is called “Core” inflation, because it excludes volatile food and energy prices, which tend to swing in response to economic rather than monetary shocks. It tends to be used by monetary policy makers.
- Looking at data from the late 1990s through the present, we see that headline inflation is more varied and is frequently but not always higher than core inflation.
- Core inflation, has remained in the 1 to 3 percent range (denoted by green brackets).
- Whether the Fed is intentional about it or not, core CPI has tracked a 2 percent target fairly closely in the last decade. Even in recent months, when talk of inflation and deflation is grabbing headlines, Core CPI has remained at 1.7 to 1.8 percent on a year-over-year basis—well within the range it has maintained for the last 10 years.Copyright National Association of Realtors, Reprinted with permission
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