Core inflation index

Definition

The core inflation index measures the change in prices of goods and services, excluding food and energy. It provides a clearer view of long-term inflation trends by omitting the more volatile categories.

5 Must Know Facts For Your Next Test

1. Core inflation is used by central banks to set monetary policy.
2. It excludes food and energy prices because they are highly volatile.
3. Core inflation is often compared to headline inflation, which includes all items.
4. A stable core inflation rate is seen as an indicator of economic stability.
5. Central banks target a specific core inflation rate to manage economic growth.

Review Questions

• Why does the core inflation index exclude food and energy prices?
• How do central banks use the core inflation index in monetary policy?
• What is the difference between core inflation and headline inflation?

Related terms

headlineInflation: Headline inflation measures total price changes including all goods and services.

monetaryPolicy: Monetary policy involves managing interest rates and money supply to influence economic activity.

consumerPriceIndexCPI: The Consumer Price Index (CPI) measures the average change in prices paid by consumers for goods and services over time.