Estimating The Common Trend Rate Of Inflation For Consumer Prices And Consumer Prices Excluding Food And Energy Prices

Core inflation is often defined as the trend rate of change in overall prices. The rate of change in consumer prices excluding food and energy prices, perhaps smoothed over several quarters, is a common proxy for this definition of core inflation - reflecting the idea that food and energy prices are more volatile than (most) other components, implying that such prices may contain less signal regarding the trend rate of inflation. In a forecast context, projections of overall consumer price inflation often converge to recent values of inflation measured from consumer prices excluding food and energy prices; empirical evidence that overall consumer price inflation may "error correct" toward inflation measured from consumer prices excluding food and energy prices is sometimes presented to motivate this practice.