Core Inflation Overview
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Questions and Answers

What is the purpose of core inflation?

  • To measure the inflation rate of essential goods only
  • To focus solely on non-essential items' price changes
  • To eliminate transitory effects on the CPI (correct)
  • To include all components of the CPI basket for accuracy

    • Which components are typically removed in the calculation of core inflation?

  • Goods with stable prices
  • Non-essential luxury items
  • Services that have regular price changes
  • Items affected by supply side factors (correct)

    • How does core inflation differ from regular inflation measures?

  • It excludes components influenced by supply side factors (correct)
  • It only focuses on transitory effects on the CPI
  • It includes only essential goods in the calculation
  • It considers all items equally in the CPI basket

    • Which of the following statements best describes core inflation?

    <p>It helps gauge long-term price trends accurately</p> Signup and view all the answers

    Why is core inflation considered a more stable measure?

    <p>As it removes volatile components like food and energy</p> Signup and view all the answers

    What is the main method used to measure inflation today?

    <p>Consumer Price Index (CPI)</p> Signup and view all the answers

    Why was the term 'inflation' originally used by early economists?

    <p>To refer to the devaluation of the currency</p> Signup and view all the answers

    What is typically represented by the value '100' in Consumer Price Index (CPI) calculations?

    <p>The base year used for comparison</p> Signup and view all the answers

    How did the European Central Bank measure food inflation during the COVID-19 pandemic?

    <p>By using real-time web scraping of online food prices</p> Signup and view all the answers

    In some countries, how is owner-occupied housing (OOH) included in inflation measurement?

    <p>By imputing rents</p> Signup and view all the answers

    What was a significant factor early economists categorized as influencing the rise or fall of prices?

    <p>Currency depreciation</p> Signup and view all the answers

    What distinguishes the 'Ex.food and energy' approach to core inflation measurement from other approaches?

    <p>It reflects the origin of the concept of core inflation in the United States</p> Signup and view all the answers

    How do statistical approaches aim to reduce temporary fluctuations in inflation?

    <p>By computing limited influence estimators such as median and/or trimmed means</p> Signup and view all the answers

    What is a challenge faced by economic approaches in deriving a measure of core inflation?

    <p>Defining core inflation without consensus on the best measure</p> Signup and view all the answers

    What do central banks typically exclude in core inflation measures?

    <p>Food and energy prices</p> Signup and view all the answers

    How can inflation expectations impact economic outcomes?

    <p>By influencing instrument instability</p> Signup and view all the answers

    Which factor determines the choice of core inflation measurement method?

    <p>Economic context and analysis goals</p> Signup and view all the answers

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