Headline inflation is a measure of the total

inflation In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduct ...

within an economy, including commodities such as food and

energy In physics, energy (from Ancient Greek: ἐνέργεια, ''enérgeia'', “activity”) is the quantitative property that is transferred to a body or to a physical system, recognizable in the performance of work and in the form of hea ...

prices (e.g.,

oil An oil is any nonpolar chemical substance that is composed primarily of hydrocarbons and is hydrophobic (does not mix with water) & lipophilic (mixes with other oils). Oils are usually flammable and surface active. Most oils are unsaturated ...

and

gas Gas is one of the four fundamental states of matter (the others being solid, liquid, and plasma). A pure gas may be made up of individual atoms (e.g. a noble gas like neon), elemental molecules made from one type of atom (e.g. oxygen), or ...

), which tend to be much more volatile and prone to inflationary spikes. On the other hand, "

core inflation Core inflation represents the long run trend in the price level. In measuring long run inflation, transitory price changes should be excluded. One way of accomplishing this is by excluding items frequently subject to volatile prices, like foo ...

" (also non-food-manufacturing or underlying inflation) is calculated from a consumer price index minus the volatile food and energy components. Headline inflation may not present an accurate picture of an economy's inflationary trend since sector-specific inflationary spikes are unlikely to persist.

Uses

The

European Central Bank The European Central Bank (ECB) is the prime component of the monetary Eurosystem and the European System of Central Banks (ESCB) as well as one of seven institutions of the European Union. It is one of the world's most important centr ...

and the Bank of England have mandates that spell out their inflation goals in terms of headline inflation.

India India, officially the Republic of India (Hindi: ), is a country in South Asia. It is the seventh-largest country by area, the second-most populous country, and the most populous democracy in the world. Bounded by the Indian Ocean on the so ...

also focuses on headline inflation. In the

United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territori ...

, however, the

Federal Open Market Committee The Federal Open Market Committee (FOMC), a committee within the Federal Reserve System (the Fed), is charged under United States law with overseeing the nation's open market operations (e.g., the Fed's buying and selling of United States Treas ...

(FOMC) focuses on core inflation—namely the "

personal consumption expenditures price index The PCE price index (PePP), also referred to as the PCE deflator, PCE price deflator, or the Implicit Price Deflator for Personal Consumption Expenditures (IPD for PCE) by the Bureau of Economic Analysis (BEA) and as the Chain-type Price Inde ...

". However, President of the

Federal Reserve Bank of St. Louis The Federal Reserve Bank of St. Louis is one of 12 regional Reserve Banks that, along with the Board of Governors in Washington, D.C., make up the United States' central bank. Missouri is the only state to have two main Federal Reserve Banks (Ka ...

James B. Bullard explained that the FOMC still takes headline PCE into account, and that since 2008 (in the wake of the

financial crisis A financial crisis is any of a broad variety of situations in which some financial assets suddenly lose a large part of their nominal value. In the 19th and early 20th centuries, many financial crises were associated with banking panics, and man ...

) the FOMC has included forecasts for both types of inflation in its semiannual "Monetary Policy Report" for the

United States Congress The United States Congress is the legislature of the federal government of the United States. It is bicameral, composed of a lower body, the House of Representatives, and an upper body, the Senate. It meets in the U.S. Capitol in Washing ...

. He emphasized that "

the Fed The Federal Reserve System (often shortened to the Federal Reserve, or simply the Fed) is the central banking system of the United States of America. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a ...

's main concern is long-run headline inflation and the prices people actually pay."

References

Inflation {{Econ-stub

Uses

See also

References