Inflation Remains Sticky in Europe, with Core Prices Cooling Less than Expected

EconEye Admin

2 years ago

Inflation in the EU eased to 2.6% in February, but both the headline and core figures were higher than expected. Core inflation is holding at 3% even as the headline rate moves towards the ECB’s 2% target.—cnbc.com, March 1, 2024

Answer the following questions to check your understanding of the story.

How do headline inflation and core inflation differ?

Headline inflation rate is calculated using ___________while core inflation rate _____________.

a) the CPI excluding non-personal consumption expenditure; uses only the largest components of consumer expenditure

b) the CPI; uses the CPI data excluding the volatile components of food and housing

c) the CPI; uses the CPI data excluding the volatile components of energy, food, and alcohol

d) current CPI data; uses base-year consumer expenditure

Wrong! - How do the prices of the goods and services included in the CPI basket vary? Which ones are no included in the calculation of the core inflation rate?

That's Right! - Headline inflation rate is calculated using the CPI while core inflation rate uses the CPI data excluding the volatile components of energy, food, and alcohol.

How can the headline inflation rate be lower than the core inflation rate?

The headline inflation rate is lower than the core inflation rate if energy, food, and alcohol prices are _________.

a) falling

b) rising more slowly than headline inflation

c) not changing

d) rising more slowly than core inflation

Wrong! - Headline inflation includes prices on the volatile components of the CPI excluded from core inflation. The headline inflation falls to less than core inflation, so the prices of the volatile components in CPI could not have risen and must have fallen.

Correct! - Headline inflation includes prices on the volatile components of the CPI excluded from core inflation. If headline inflation falls to less than core inflation, then the prices of the volatile components in CPI must have fallen.

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