Question

1. Which is a more meaningful measure of "inflation" - the one using the headline CPI-U (including energy and food prices) or the one using "core" CPI-U (excluding energy and food prices)? Why? From which perspective?

Answer 1

1.

Headline CPI-U that considers energy and food price are more meaningful, because it is more important and meaningful for the consumers. The food price volatility and energy price volatility affect significantly to the consumers and CPI is for the consumers, then Headline CPI-U reflects the actual impact to be faced by the consumers. Hence, from the perspective of consumers, Headline CPI-U is more important and meaningful. On the basis of it, consumers can demand relief from the government in terms of increased level of social security benefits and other allowances.

Though from the perspective of government and research agencies, core CPI is more meaningful, because it helps them know the long term trend and stable values of CPIs over a period of time. It makes them develop policies that can be used to deal with the CPI in the economy.