Core Inflation

Core inflation is the permanent part of inflation that is adjusted for temporary or one-off effects. Excluding certain goods from the index, statistical analysis and model-based methods are the ways that are most commonly used in calculating core inflation. Nevertheless, the most followed core inflation indicators are those calculated by the exclusion method. To this end, elements such as energy, core food prices and excise taxes, which are more susceptible to external impacts (energy prices, seasonal conditions, fiscal policy) and can display transitory price changes, are excluded from inflation calculations. The objective of using core inflation is to detect the factors that lead to constant change in the general level of prices. Even if the inflation target is determined based on the headline CPI inflation, core inflation indicators are also taken into account to make more realistic policy decisions. Countries implementing inflation targeting follow not only the core inflation indicators but also alternative indices calculated by different methods, paying attention to the advantages and disadvantages of all calculation methods.

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* The views expressed here are those of the authors. They do not necessarily reflect the official views of the Central Bank of the Republic of Turkey.

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