The debate over inflation’s future path is for many a question of focus. For those who look to top-line inflation, as measured by the consumer price index or its cousin, the personal consumption expenditures index, the trend is clear: prices are rising.
But the response to the contrary comes by those who say that core measures of CPI and PCE are more relevant. By that standard, the trend of late reflects control and containment.
The disparity between the two measures of inflation is no great mystery. The rising price of energy is captured in top-line CPI and PCE, and this measure of inflation has been climbing. Energy and food are excluded from the core measures, which explain why core CPI and PCE look calm and their top-line counterparts are rising.
But as a recent research note from the St. Louis Fed reminds, the jury is still out on what a widening disparity between top-line and core measures of inflation means for monetary policy. “A disconnect between measures of headline and core inflation could be a concern for policymakers,” Riccardo DiCecio, an economist at the bank advised. “It may not be reasonable to conclude that monetary policy has been effective in maintaining price stability by looking solely at a core measure of inflation that excludes sustained oil price increases.”