2015•Bulletin of EU and US inflation and macroeconomic analysisRequires access
III. Monthly debate: Core lnflation: Alternatives Measures and their Utility. Different Alternatives for Core Inflation
Antoni Espasa, Rebeca Albacete
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Abstract
The starting problem with core inflation is that there is not a clear idea about its definition. In avague way it has been argued that core inflation is related to a definition of underlyingmonetary inflation which would be more interesting for central banks. The changes inindividual prices could be seem as having two components, a common one given by coreinflation and an idiosyncratic one. Then averaging these individual price changes a coreinflation measure can be obtained. The problem is how to define the weights. The theory ofthe cost of living index provide a solution consisting in using the relative importance of eachitem, that is the budget share weight multiplied by the ratio in (t-1) of the leve! of correspondingindividual price and the leve! of the price index.