The Federal Reserve Bank of New York released a study today—A Comparison of Measures of Core Inflation—that evaluates several measures of U.S. core inflation using a common set of performance criteria, and finds that no one measure is markedly more useful than the others.
Measures of core inflation are intended to assist economists in distinguishing between permanent and temporary price movements. The degree to which these measures effectively make this differentiation affects the ability of central banks to determine the appropriate course of monetary policy.
This study, released as part of the Bank’s Economic Policy Review series, examines four measures of core inflation, including the commonly used aggregate inflation series that excludes food and energy prices. The study concludes that no measure of core inflation consistently dominates the others, according to authors Robert Rich and Charles Steindel. This does not imply that these measures are not informative; however, it is difficult to determine how best to use each measure, especially when their signals differ.
Robert Rich is an officer and Charles Steindel is a senior vice president at the Federal Reserve Bank of New York.