CPI and Core CPI

As expected, the markets didn’t seem to react to the Fed’s move to lower the discount rate yesterday.

Today’s news about the CORE CPI is a good opportunity to teach students about the difference between the rate of inflation and the core rate (the overall rate minus the volatile food and energy sectors).

From CCEE’s Teacher Guide to the Standards
With price data such as the CPI, an attempt to study long-term trends will be misleading if extremely volatile items are included in the survey. To minimize volatility, a “core” index which excludes the volatile food and energy sectors is calculated. Similarly, orders for durable goods are reported along with durable goods orders “excluding transportation and defense orders” since these components tend to “lumpy” and distort the trend.


From the Wall Street Journal
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News Alert
from The Wall Street Journal

U.S. consumer prices rose 0.2% in January from the previous month, the same increase as in December 2009. But core prices, which strip out energy and food items and are more closely watched by the Federal Reserve, fell by a monthly 0.1% in January. The last time core prices fell was in December 1982. The drop leaves scope for the Fed to keep supporting the economy with record-low interest rates.

http://online.wsj.com/article/SB10001424052748703787304575075052818196106.html?mod=djemalertNEWS