What is the difference between the so-called "headline rate of inflation" and "the core rate of inflation"?

Answer 1

the non cut and paste answer is core inflation subtracts out oil inflation.

Answer 2

Headline rate-Nomial Inflation
Core rate - Real Inflation

Answer 3

There are multiple definitions of inflation. Since inflation is the general tendency of prices to rise over time, rates are different depending on where you look in the economy.

Consumer inflation rates usually look at a 'basket' of goods and services and compare that basket for different periods of time.

Producer inflation rates usually look at the cost of raw goods, and are seen as something of a predictor of consumer inflation (as price rises at the wholesale level get passed on to consumers).

Macroeconomic measures usually look at the change in the ratio of nominal GDP to real GDP.

The 'headline rate' is usually the higher of the consumer rates, for shock value mostly. Usually the CPI is reported, which comprises a basket of consumer goods considered necessary for an 'average' family of four to live for a specified period of time.

The 'core rate' generally refers to all those products except energy and food, which tend to be very volatile.

Why is the headline rate generally higher? Consider that gasoline prices have gone up by nearly 50% in the past two years, or little more than 2% monthly. If all of your other goods and services in the basket go up by 0.4% but the gasoline has gone up by 2%, that tends to skew things.

And then look, the following month, gasoline prices drop 15%.

Some criticism of these inflation measures is:

* The basket of goods is misleading - hence the problem of average. For instance, the basket contains so many pounds of beef and chicken. What if you're a vegetarian? The basket includes so many gallons of gas - what if you walk to work or don't have a car or have an SUV or a hybrid? But average is the best we can do.

* The basket of goods is outdated - it does need to be updated from time to the time. At one time, mutton was included, for instance. No one eats mutton anymore, except in gyros and moussaka. Also, it is unrealistic to depict prices in a household without looking at technology - TVs are throwaway items, and they are much cheaper and of higher quality than they were ten years ago.

The funniest thing I've ever read about inflation was a post by some idiot who made the following argument in 2002:
1) Inflation is now 3% annually.
2) George W. Bush caused it.
3) The Bible prohibits charging high interest rates.
4) Therefore, Dubya is the antichrist.

My response:
1) Inflation of 3% is considered low and manageable. There's a short-term memory here - inflation used to be double-digit.
2) George W. has nothing to do with inflation, unless of course he runs consistently expansionist fiscal policies that bring demand-push inflation - but even on these Congress is implicit.
3) Actually, inflation and interest rates have little to do with each other, other than interest rates tend to be higher in times of inflation (lest the lender lose money through erosion).
4) Actually, Scripture prohibits the charging of interest to the point of putting someone in debt. An agreeable interest rate in a competitive banking environment is not against Scripture, although usury was common in the non-competitive and indeed predatory environment in ancient times.

Sorry so much info - too much coffee.

Answer 4

a college degree to beat inflation