The relationship between headline, core, and energy inflation: A wavelet investigation

Federico Giri

Economics Letters, 2022, vol. 210, issue C

Abstract: This paper investigates if core inflation, the measure of price growth obtained excluding the more volatile items such as energy and food prices, is a good approximation of headline inflation that considers the entire bundle. Starting from the mid-90s, our answer is negative. From a monetary policy perspective, this raises the issue of whether controlling core inflation is still useful to anchor medium-run inflation. Using the wavelet methodology, our analysis suggests that starting from the end of the 90s core inflation is weakly correlated with headline inflation especially at the lower frequencies. Energy inflation is strongly correlated with headline inflation at a broad range of frequencies, casting doubt on its exclusion from a trend inflation measure.

Keywords: Headline inflation; Core inflation; Energy inflation; Wavelets; Medium-run (search for similar items in EconPapers)
JEL-codes: E00 E30 E31 E58 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:210:y:2022:i:c:s0165176521004584

DOI: 10.1016/j.econlet.2021.110214

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