Rising prices of goods and services is an aspect that is hated by consumers the most. This is because it takes away the purchasing power of the consumer. Since an economy is nothing without the consumers, the economists make predictions in a certain way that excludes essential goods and services.
What is Core Inflation?
Inflation is something that each economic system experiences at times. It is the general rise in the prices of goods and services. Interestingly, slight inflation is even considered good, as it indicates that the economy is strengthening. As inflation is almost always certain, there are different concepts surrounding inflation, such as hyperinflation, disinflation, and core inflation. Core inflation is a prediction-based conceptual idea, in which, it is stated that the prices of staple aspects of living such as food and energy are not accounted for despite their price increase. This is because food and energy are not tied to economic structure, as these are essential needs of humanity. It is usually calculated by the consumer price index (CPI). A CPI is used to calculate the changes in how much households spend on goods and services from a list of fixed items. Core inflation is also important because it shows how consumers are adjusting to increased prices of goods and services.
Core Inflation Examples in History
1. The United States’ Core Inflation
The great recession took the entirety of the United States by storm. The collapse of the housing and banking system was so immense that it was felt across the globe. As for the United States, things became dire, as millions of people lost their jobs and houses. During this, the economists calculated the CPI with and without the inclusion of the food and energy sector. At the time, the statistics showed that there was a 5 percent increase in general CPI; however, only 2 percent of change was seen in CPI that excluded food and energy.
2. The United Kingdom’s Core Inflation
Unlike other nations that suffered immensely during the wars or were subject to natural calamities in the early 2000s, the United Kingdom remained relatively unphased. Although its economy has been on the rise, inflation rates in the UK have also been rising, making consumers lose their purchasing power. Since 1997, prices of consumer goods and services have been increasing by 6 percent each year. Interestingly, the massive surge in consumer prices occurred amidst the coronavirus pandemic, as it was under 3 percent until 2017.
3. Japanese Core Inflation
The Japanese economy is one of its kind in the world because the government of Japan has introduced policies and laws to keep inflation as low as possible. While the core inflation rates remained stable for most of the early 2000s, Japan experienced inflation of 2 percent in 2009.
4. Italy’s Core Inflation
Italy is also a unique example of core inflation. Whereas the rate of core inflation has been increasing in other nations each year, Italy experienced a core deflation in 2011, as its core inflation rates fell from 3 percent to 0.5 percent in 2015. Interestingly, it remained under 1 percent until 2020, and now, it is over 1.5 percent and rising.
5. Russia’s Core Inflation
The Russian economy is one of the most unstable economies in the world. From the Tsar’s rule to the dissolution of the USSR, Russia has seen many ups and downs in its economy; however, the core inflation of Russia soared to 18 percent in 2015 from 5 percent in 2010. Unexpectedly, the purchasing power of the consumers dropped significantly.