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Measures of New Zealand core inflation

Satish Ranchhod

Assessing the strength of inflationary pressures is challenging. Headline inflation can be volatile due to temporary or idiosyncratic factors which are unrelated to the strength of domestic demand, or which are not expected to be repeated. Core inflation measures attempt to examine the component of inflation that is related to broad trends in economic conditions and pricing behaviour, and which is likely to be more persistent. There is no agreed upon ‘best’ approach to measuring core inflation, and each approach has various advantages and limitations. Some work best in some circumstances; some in others.