Core Inflation: Concepts, Uses and Measurement

Abstract

Over the last decade central banks have tended to accord increased importance to controlling inflation and fostering policy credibility. The concept and measurement of core inflation has an important role to play both in the formulation of policy aimed at controlling inflation and in providing policy accountability. In practice, however, the concept of core inflation has tended to be ill-defined, and a wide range of different techniques have been used in trying to measure the concept. This paper reviews the concept of core inflation, focusing on the alternative interpretations of core inflation as the persistent or generalised element of inflation. The role of a core inflation measure in policy formulation, communication and accountability is also discussed. The paper also outlines and comments on alternative empirical approaches taken to measuring core inflation.