Why Reality-Based Economists Focus on Core Inflation
Paul Krugman:
The Core, Not Rotten: There have been many news reports the past few days about declining inflation — very different from this time last year, when warnings of higher inflation (and higher interest rates) abounded…. [E]vents amount to another win for the IS-LM model and the concept of a liquidity trap. They also amount to a win for the concept of core inflation…. Look at the last decade…. Focusing on headline inflation, you would have experienced three inflation panic attacks (and one deflation panic attack), whereas excluding volatile prices would have kept you relatively calm.
