One of the most used terms in the economic literature is inflation, which refers to the behavior of prices. However, there is a category of this measurement that is rarely talked about, called core inflation.
(The country where prices doubled every 15 hours).
According to the definition of the Bank of the Republic, core inflation seeks to eliminate the effects of temporary shocks in prices.
“For this, those items with highly volatile price behaviors or that are beyond the control of monetary policy are excluded from the CPI basket, such as food prices and some regulated prices (fuels, public services, transportation) “.
(The $2,000 bill that Argentina will issue to combat inflation).
According to the Issuer, these measures provide information on the long-term trend of prices, and it is inflation that is directly affected by monetary policy decisions.
Why use core inflation?
Usuallycentral banks use the CPI (consumer price index) for monetary policy decisions. However, this indicator is influenced by volatile demand and supply factors that cannot be counterproductive in the long term, since they generate sudden and transitory rises in prices.
(The items that put pressure on transport inflation).
Faced with this situation, it is essential for the macroeconomic authorities to have indicators such as core inflation that filter those transitory variations that respond to supply factors in order to establish long-term behavior.
A monetary policy strategy based on core inflation indices could help reduce costs, in terms of growth, of monetary policy to the extent that these indices measure those price variations that tend to be incorporated into agents’ inflation expectations.
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