What is headline inflation?
Headline inflation is the gross inflation figure reported by the Consumer Price Index (CPI) published monthly by the Bureau of Labor Statistics. The CPI calculates the cost of purchasing a fixed basket of goods to determine the level of inflation across the economy. The CPI uses a base year and indexes the prices for the current year according to the values for the base year.
What is inflation?
Headline inflation explained
As it includes all aspects of an economy experiencing inflation, headline inflation is not adjusted to suppress highly volatile numbers, including those that can change regardless of economic conditions. Headline inflation is often closely linked to changes in the cost of living, which provide useful information to consumers in the market.
The overall figure is not adjusted for seasonality or the often volatile components of food and energy prices, which are removed from the basic Consumer Price Index (CPI). Headline inflation is usually quoted on an annualized basis, which means that an overall monthly figure of 4% inflation is equivalent to a monthly rate which, if repeated for 12 months, would create 4% inflation for year. Comparisons of headline inflation are usually made on an annual basis, also known as headline inflation.
Negatives of rising inflation
Inflation is a threat to long-term investors because it erodes the value of future dollars, can stifle economic growth and can cause prevailing interest rates to rise. While headline inflation tends to get the most media attention, core inflation is often seen as the most valuable measure to follow. Overall and basic results are closely followed by investors, and are also used by economists and central bankers to help forecast economic growth and monetary policy.
Core inflation removes components of the CPI that can exhibit large amounts of volatility from month to month, which can cause an undesirable distortion of the overall figure. The most frequently removed factors are those related to the cost of food and energy. Food prices can be affected by factors other than those attributed to the economy, such as environmental changes that cause problems in crop growth. Energy costs, such as oil production, can be affected by forces outside of traditional supply and demand, such as political dissent.
From 1957 to 2020, the average core inflation rate in the United States was 3.64%. The all-time high was 13.60% in June 1980. The lowest rate was recorded in May 1957 with an inflation rate of 0%. In 2020, the Federal Reserve’s target rate for core inflation was 2%.