Question

The "core" inflation rate is typically defined as the change in consumer prices for all goods included in the CPI basket except energy and food products. Suppose the overall inflation rate based on the CPI was 4 percent for the past year, and energy and food prices did not change during the year. Is the core inflation rate for the past year higher or lower than 4 percent? Higher

Answer 1

Answer:

Higher

Step-by-step explanation:

1) In Macroeconomics, The core inflation rate does not include food and energy since these categories are way more volatile, due to oil and season matters. And statistically this measure looks for more robust items, to compose the core inflation in a more accurate way. The Consumer Prices Index (CPI) is the metric used for the cost of living.

Another Index, used by the Fed is the PCE, for the goods and services consumed by the US residents.

So, the Core inflation is based on CPI and PCE, Personal Consumption Expenditure therefore the inflation rate for the past year was higher than 4%, for it is not solely based on CPI index.