It also discusses briefly various techniques that are employed to measure core inflation. Section III briefly reviews the literature on core inflation, both in the international and domestic context. Section IV tests various exclusion-based measures of core inflation for India. The Indian economy has been subject to repeated and significant supply side shocks from time to time. Examples of such shocks in the recent period were drought of 2009 and oil price rise in 2010 that kept headline inflation persistently high.
Since Russia invaded Ukraine and western countries slapped sanctions against the Russian government, gas prices in the US have witnessed a considerable rise. Earlier, the US’s national average daily gas price had hit a record high of $4.11 per gallon, although it has eased in recent days. The consumer price index or CPI is a metric that is used to measure inflation.
Granger causality tests were also carried out to confirm that headline inflation reverts to core and not vice versa. Of the seven measures tested, only non-food manufacturing WPI satisfies the causality condition. No clear results on the direction of causality were observed in the case of Non-metal manufacturing. Inflation persistence tests showed that while most core inflation measures considered were persistent, non-food manufacturing inflation turned out to be relatively more persistent than others.
Significantly, food articles sub-group was about half volatile as the non-food articles group and about 1/3rd less volatile than the minerals sub-group. Interestingly, studies in respect of many other EMEs also find that food inflation is less volatile than fuel. This perhaps is due to the reason that the rise in food prices is becoming persistent. Many economists, analysts, and investors anticipate that the labour market and inflation data will have moderated to the point where the central bank will be compelled to suspend rate increases before their May meeting.
There is no unique way of compiling core inflation and there is no generally accepted and intuitively plausible criterion to assess the policy usefulness of competing core inflation measures directly. Inflation in the United States has shot up 8.4% over the year to the end of March, hitting a 41-year high. It is the highest year-on-year increase in the inflation rate in the United States since December 1981. The US consumer price index has soared by 1.2 per cent in March from its February figure.
Such a message is bound to send signals for the market to take a view as far as current valuations of stocks are concerned. The all-items index increase of 7.7 percent for the 12 months ending October was the smallest 12-month increase since the period ending January 2022. The all items less food and energy index rose 6.3 percent over the last 12 months.
The index for all items less food and energy, however, rose 0.3 percent in December, after rising 0.2 percent in November. The Consumer Price Index measures the change in the prices of goods and services contained in a basket of consumer items. It is a comparison of the general price level in the markets in a particular time period from a time frame in the past. CPI, therefore, is calculated by referring to a base year which is a benchmark. As per the economists, the fall in inflation rate is primarily driven by cheaper energy costs fueling the first decline in the last two-and-a-half years.
In March, the United States recorded a 41-year high year-on-year inflation. The euro area, still deep in lockdowns to combat COVID-19, has had a dose of good news. More than 10 million people in France have now received a first shot of a vaccine, with a government target for the number reached a week ahead of schedule.
The base year is monitored by the Central Statistics Office , Ministry of Statistics and Programme Implementation , and changes from time to time. TWO MAJOR pharmaceutical firms, Dr Reddy’s Laboratories and Cipla, announce their March quarter earnings on Friday. Drug business has been a beneficiary of the pandemic over the past year, and the trend is set to continue. Treasury yields and the dollar jumped, while US stock futures fell following the report.
The primary motive of RBI is inflation control, while it may change from time to time depending on the decision of the monetary policy committee. Knowing what is CPI and how much is the impact becomes important for the central bank. An important feature of a good core inflation measure is that it should help predict future headline inflation.
Euro zone business activity bounced back to growth in March – Germany’s ZEW sentiment survey out on Tuesday, may support that picture. Overall Q1 S&P 500 earnings are expected to have jumped 24.2% from a year earlier, according to IBES data from Refinitiv. The results follow a big rally in sectors including energy and financials – stocks most likely to benefit from the rebound. US corporates – due to kick off the reporting https://1investing.in/ season with the major banks – look on track for the biggest quarterly results gain since Q3 2018, when tax cuts under then President Donald Trump drove a surge in profit growth. Post the October inflation data, it will be interesting to see if the Fed will keep its foot off the brake of the U.S. The markets are, however, expecting a 50 basis points rate hike in December keeping in context the Fed’s dot plot.
As per extant RBI’s guidelines, banks will be free to decide interest rate on loans against these securities, subject to the condition that such interest rate is to be at base rate or above. Yes, these securities are eligible to be used as collateral for loans from banks, financial Institutions and Non Banking Financial Companies, . In case of redemption prematurely before the maturity date, investors can approach the concerned bank few days before the coupon date and apply. Investors can approach the banks for other services such as change of address, early redemption, nomination, lien marking, etc.
US CPI data shows inflation rate cooling more than forecast to 7.7% in October
To be specific, CPI measures retail inflation by collecting data on the prices of goods and services that are consumed by the retail population of the country. CPI meaning refers to an increase in the price level of a selected basket of goods and services over a select period of time. ‘Fuel and power’ group of WPI was found to be the most volatile in India, followed by primary articles and manufactured products. Within primary articles, minerals and non-food articles sub-groups were more volatile.
CPI assists in measuring inflation which ultimately helps in understanding the price rise for a common man. This metric helps in determining what the cost of living might be for a person. Measuring the price of a basket of goods and services that an average Indian consumes is a tedious process. This will consist of transportation, medical care, electricity, education, and almost everything that requires an expenditure of money. WPI captures the average movement of wholesale prices of goods and is primarily used as a GDP deflator. WPI( ) reckons only basic prices and does not include taxes, rebate/trade discounts, transport and other charges.
- CPI also helps understand the real value of salaries, wages, and pensions, the purchasing power of the nation’s currency, and regulating rates.
- Investors can approach the banks for other services such as change of address, early redemption, nomination, lien marking, etc.
- Price stability as defined by ‘low and stable inflation’ being one of the key objectives, the Reserve Bank monitors a range of price indices both at aggregate and disaggregated levels [RBI ].
- The expectation was that the core inflation would relax to 6.5% and headline inflation will moderate to 7.9%.
- Simply put, CPI specifically identifies periods of deflation or inflation for consumers in their day-to-day living expenses.
Apart from ‘fuel group’ that is the most volatile, two other sub-groups, viz., metals sub-group and nonfood primary articles sub-group were found to be highly volatile. Recognising this, three additional exclusion based measures – one excluding fuel group and metals sub-group and another excluding fuel group, metals sub-group and non-food primary articles sub group – were also considered which data pertains to us inflation in the study. Considering that metal prices are more volatile and are more directly linked to international prices than processed food in recent period, non metal manufacturing is also considered as a candidate. To further confirm the previous results, an attempt was also made to test whether there was any causal relationship between the headline and the core measures of inflation.
U.S. Consumer Price Index (CPI) YoY
Notwithstanding the importance of CV, it may be noted that most studies on core inflation emphasise the other three measures of volatility. CV is generally considered better than standard deviation when the units are different so that the standard deviations are normalised by their means. While the first three represent the simplest and usually applied core inflation measures in most empirical studies, the fourth one, i.e., non-food manufacturing has been recently used by the Reserve Bank as an indicator of core. The fifth, sixth and seventh measures of core inflation were constructed by excluding the highly volatile sub-groups.
To improve the accuracy and usefulness of the Consumer Price Index , the Bureau of Labor Statistics intends to update spending weights on an annual basis using data from a single calendar year. This differs from the previous method, which updated weights every two years using two years’ worth of expenditure data. This revision will take effect when the US CPI index for January 2023 is calculated using data on consumer spending from 2021. The release of the January 2023 CPI data on Friday, February 10, 2023, will mark the start of the transition to yearly weights. By Ambar Warrick Investing.com — Gold prices steadied at a near one-month low on Tuesday amid continued pressure from strength in the dollar and Treasury yields, with focus now turning to…
Core inflation is simply a convenient guide to help the central bank achieve its objective of controlling total inflation. Most countries use measures of core inflation in addition to headline measures of inflation and not as a substitute. Of the 23 inflation targeting countries, only five countries target core inflation .