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Does headline inflation converge to core?

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  • Zheng Liu
  • Justin Weidner

Abstract

Recent surges in food and energy prices have pushed up headline inflation to levels well above its underlying trend. In contrast, core inflation, which excludes food and energy prices, has remained low and stable. Historical data suggest that, since the early 1990s, headline inflation has tended to converge toward core inflation. Thus, high inflation is unlikely to persist as long as inflation expectations remain anchored.

Suggested Citation

  • Zheng Liu & Justin Weidner, 2011. "Does headline inflation converge to core?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue aug1.
    • Handle: RePEc:fip:fedfel:y:2011:i:aug1:n:2011-24
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    References listed on IDEAS

    as
    1. Athanasios Orphanides & John C. Williams, 2007. "Inflation targeting under imperfect knowledge," Economic Review, Federal Reserve Bank of San Francisco, pages 1-23.
    2. Olivier J. Blanchard & Jordi Galí, 2007. "The Macroeconomic Effects of Oil Price Shocks: Why Are the 2000s so Different from the 1970s?," NBER Chapters, in: International Dimensions of Monetary Policy, pages 373-421, National Bureau of Economic Research, Inc.
    3. Olivier J. Blanchard & Jordi Gali, 2007. "The Macroeconomic Effects of Oil Shocks: Why are the 2000s So Different from the 1970s?," NBER Working Papers 13368, National Bureau of Economic Research, Inc.
    4. Timothy Cogley & Thomas J. Sargent, 2005. "The conquest of US inflation: Learning and robustness to model uncertainty," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(2), pages 528-563, April.
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    Cited by:

    1. John C. Williams, 2015. "The view from here: outlook and monetary policy," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
    2. Jamilu Iliyasu & Aliyu R Sanusi & Suleiman O Mamman, 2023. "Testing for explosive behavior in relative inflation measures: Implications for monetary policy under uncertainty," Economics Bulletin, AccessEcon, vol. 43(2), pages 934-947.
    3. John C. Williams, 2015. "Looking forward: the path for monetary policy," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
    4. John C. Williams, 2015. "The view from here: the economic outlook and its implications for monetary policy," Speech 135, Federal Reserve Bank of San Francisco.
    5. Mazumder, Sandeep, 2014. "The sacrifice ratio and core inflation," Journal of Macroeconomics, Elsevier, vol. 40(C), pages 400-421.
    6. Murhula, Pacifique, 2020. "Tendance de l'inflation sous-jacente en RDC: une modélisation à partir de l'approche VAR structurelle [Trend of Core inflation in DRCongo: a model based on the Structural VAR approach]," MPRA Paper 105005, University Library of Munich, Germany, revised 08 Jan 2021.
    7. John C. Williams, 2015. "Looking forward, forward looking: the path for monetary policy," Speech 138, Federal Reserve Bank of San Francisco.

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    Keywords

    Inflation (Finance);

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