In a commentary sent to Citigroup's clients July 13, economist Robert V. DiClemente at Citigroup Global Markets Inc. called the issue of overall or ``headline'' inflation versus core inflation ``a false debate.''
``The Fed's commitment to price stability does not entail choosing one over the other,'' he said. ``History has demonstrated that so-called core measures are a good guide to headline inflation's ultimate path.''
DiClemente noted that from 1984 until 2005, the cumulative increase in core prices was consistently a bit greater than that in overall prices. Then the surge in energy prices tipped the balance the other way.
In the short run, the overall measures are much more volatile. ``Policy that responded to such short-run deviations in overall prices would not only put the economy on a roller coaster, it would risk distorting important relative price signals, possibly undermining economic efficiency and policy's own credibility,'' he said.
The old same story. It is not about the level of prices, it is about the rate of increase in prices; not the cost of living, but the change in the cost of living. There are problems with the traditional core because food and energy have been particularly buoyant recently. However, the subdued nature of the core rate suggests that these increases have not YET fed back into other prices. The timmed-mean core measure is probably better
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