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O BJECTIVE .
Defining Headline & Core Inflation Headline Vs Core Inflation A study of 3 economies Egypt. Spain & Ireland Inferences from the study .
H EADLINE I NFLATION .
Overall Inflation faced by consumers Covers all commodities in consumer basket Generally. indicates short-term inflation CPI (Overall All Items) .
C ORE I NFLATION Excludes commodities with volatile price movements Indicator of long-term Inflation Estimation Methods o o o .
Exclusion Method Statistical Methods Econometric Methods .
C ORE I NFLATION Usually CPI (Overall) Basket for Headline Inflation (All commodities) Minus Equal to Basket for Core Inflation Price sensitive commodities Usually Food & Energy .
S. .H EADLINE V S C ORE I NFLATION U.
000 10.000 20.000 5.H EADLINE V / S C ORE I NFLATION IN E GYPT 25.000 Apr-07 Apr-10 Jan-05 Jan-08 Oct-05 Oct-08 Jan-11 Jul-06 Jul-09 Oct-11 Headline CPI Core CPI .000 0.000 15.
H EADLINE V / S C ORE I NFLATION IN S PAIN .
H EADLINE V / S C ORE I NFLATION IN I RELAND 10 15 20 25 -5 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Headline Core 0 5 .
C ONCLUSION Headline Inflation Matters: .
Imbalances in the market o o o Demand and supply mismatch due to which price changes. . Inflationary pressures at initial stages are important. Strong link between headline and core.
o . Headline and core move together. Second round effects: Wage rises because of price rise. high inflation. o o Decisions of market participants get influenced. Shock influences inflationary expectations. rise in interest rates.
C ONCLUSION Headline Inflation Doesn t Matter: .
Shock in the market o o Temporary spikes in prices for a commodity Weak link between headline and core .
Expected shock is temporary o No effect on the expectations of inflation of market participants Long term decisions will not be influenced o .
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