What is real inflation not just core? I drive and eat don't we all.?
Answer:
whats core
clothes, housing, appliances, luxury goods, entertainment& sports
Plus there are industrial goods that are not included in consumer product inflation.
Inflation isnt easy to measure. Usually one takes a typical basket of goods and services and weights together the price changes by the amount purchased. But we all consume different amounts of things so my inflation rate is different from yours. You drive more, you'll buy more petrol and that will be more important in your personal inflation rate. The headline numbers published by statistical agencies are for an 'average' person's basket of goods and services.
Concepts of 'core' inflation omit certain prices. The choice of what to omit depends why you are doing it. Some prices are highly volatile. In particular those items that are 'primary' products - ie dont require much manufacturing process - are often excluded. Usually the excluded items are fresh food and energy prices - both of which can depend heavily on their supply conditions, including the weather. Changes in these prices may tell you more about relative price changes than about general inflation. If you are trying to control inflation by changing interest rates, theres not much you can do to offset short-run disturbances to the supply of primary products. If there is a bad harvest then tough - food prices go up! thats not necessarily a medium-term inflationary problem, its just a relative price change - something else will probably fall in price eventually as people have less money to spend, or people will buy less food. So if a central bank is trying to control inflation, they might choose to look at a price inflation measure that gives a better guide to medium-term price pressures. Hence 'core' measures favoured by the US monetary authorities.
But this is controversial. As you say, people have to buy petrol and food. And if people pursued higher wages to pay higher energy and food bills - that could become a general inflation problem. So other central banks - like the Bank of England - prefer not to focus on a core measure. they are looked at - to help determine what the pressures on inflation are - but the BoE targets total consumer price inflation.
What does it matter to you? The UK Office for National Statistics website will let you calculate your own personal inflation rate. But if you were looking at your cost of living over several years, you may want to exclude those volatile, supply-driven prices. Its up to you!
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