This paper investigates if core inflation, the measure of price growth obtained excluding the more volatile items such as energy and food prices, is a good approximation of headline inflation that considers the entire bundle. Starting from the mid-90s, our answer is negative. From a monetary policy perspective, this raises the issue of whether controlling core inflation is still useful to anchor medium-run inflation. Using the wavelet methodology, our analysis suggests that starting from the end of the 90s core inflation is weakly correlated with headline inflation especially at the lower frequencies. Energy inflation is strongly correlated with headline inflation at a broad range of frequencies, casting doubt on its exclusion from a trend inflation measure.

The relationship between headline, core, and energy inflation: A wavelet investigation / Giri, F.. - In: ECONOMICS LETTERS. - ISSN 0165-1765. - 210:(2022), p. 110214. [10.1016/j.econlet.2021.110214]

The relationship between headline, core, and energy inflation: A wavelet investigation

Giri F.
2022-01-01

Abstract

This paper investigates if core inflation, the measure of price growth obtained excluding the more volatile items such as energy and food prices, is a good approximation of headline inflation that considers the entire bundle. Starting from the mid-90s, our answer is negative. From a monetary policy perspective, this raises the issue of whether controlling core inflation is still useful to anchor medium-run inflation. Using the wavelet methodology, our analysis suggests that starting from the end of the 90s core inflation is weakly correlated with headline inflation especially at the lower frequencies. Energy inflation is strongly correlated with headline inflation at a broad range of frequencies, casting doubt on its exclusion from a trend inflation measure.
2022
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11566/297744
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