The Trimmed Mean PCE Inflation Rate: A Better Measure of Core Inflation

Abstract

Over the last two decades, the Federal Reserve and numerous other central banks have placed increased emphasis on low and stable inflation as a primary goal of monetary policy. Many central banks have set out explicit numerical inflation targets, often with guidance from their country’s legislatures. Across the globe, central banks have been successful in their quest for low and stable inflation. The process began with the G-7 countries (the U.S., UK, Germany, France, Italy, Canada, and Japan) and was aided by the Maastricht Treaty, which pressured Western European countries to converge to low inflation rates if they wished to join the Euro-currency area (figure 6.1). More recently, several previously high-inflation countries (Mexico, Israel, Turkey, Spain, Portugal, and Greece, to name just a few) have joined the select circle of low-inflation countries.