Evaluating core inflation indicators

This paper proposes testable conditions for core inflation measures and uses these conditions to evaluate three widely used core inflation indicators for the United States: the ‘excluding food and energy’ indicator; the trimmed mean; and the weighted median. The major conclusion is that both the trimmed mean and the weighted median satisfy the proposed conditions and so can be used as useful core inflation indicators. However, the widely used ‘excluding food and energy’ indicator does not meet these conditions and, therefore, should not be used as a core inflation indicator.