Core inflation

Question

Core inflation

BlackTom AI · Accepted Answer

The prompt presents a very short prompt: 'Core inflation' and indicates the provided answer is 'excludes prices of food and energy.'

Since there are no answer options listed, I will focus on explaining the concept and why the stated fact is correct, while also noting the absence of competing choices to evaluate.

First, consider what core inflation means in economic terms. Core inflation is a measure of the long-run trend in prices that excludes the most volatile components of the consumer price index (CPI). The two most common exclusions are food and energy prices. These categories tend to swing with weather, harvest cycles, geopolitical events, and other short-term shocks, which can obscure underlying inflation trends.

Why exclude food and energy? Because:
- Food prices can be highly volatile due to seasonal changes, droughts, floods, pests, and global commodity markets.
- Energy prices can swing due to oil supply disruptions, changes in global demand, and geopolitical factors.
- By removing these volatile components, core inflation aims to reflect more persistent and broad inflation in goods and services, aiding policymakers in assessing underlying inflation pressures.

This definition aligns with standard economic practice and is why many central banks focus on core inflation when formulating monetary policy. It helps separate temporary price spikes from more sustained inflation trends.

If there had been multiple options, we would evaluate each as follows: options that describe core inflation as including all items would be incorrect; options claiming it excludes different categories than food and energy (e.g., excluding only shelter or excluding none) would be incorrect; and options that confuse core with headline inflation (which includes all items) would also be incorrect. Since no other options are provided here, the key takeaway is that core inflation excludes prices of food and energy to measure persistent inflation trends.

ECON 210-003 Homework 6

Core inflation

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