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A core inflation section explains how filtering out transitory factors clarifies underlying price pressures.",{"@graph":14,"@context":77},[15,34,56],{"@type":16,"itemListElement":17},"BreadcrumbList",[18,23,27,31],{"item":19,"name":20,"@type":21,"position":22},"https://docshare.wps.com","Home","ListItem",1,{"item":24,"name":25,"@type":21,"position":26},"https://docshare.wps.com/document/","Document",2,{"item":28,"name":29,"@type":21,"position":30},"https://docshare.wps.com/document/research-report/","Research & Report",3,{"item":32,"name":10,"@type":21,"position":33},"https://docshare.wps.com/document/assessing-progress-toward-price-stability-looking-forward-and-looking-backward/324754/",4,{"url":32,"name":10,"@type":35,"image":36,"author":41,"headline":10,"publisher":44,"fileFormat":47,"inLanguage":8,"description":12,"dateModified":48,"datePublished":49,"encodingFormat":47,"isAccessibleForFree":50,"interactionStatistic":51},"DigitalDocument",{"url":37,"@type":38,"width":39,"height":40},"https://docshare.wps.com/thumbnails/assessing-progress-toward-price-stability-looking-forward-and-looking-backward/324754.png","ImageObject",300,407,{"name":42,"@type":43},"Riley","Person",{"url":19,"name":45,"@type":46},"DocShare","Organization","application/pdf","2026-10-30","2026-09-21",true,{"@type":52,"interactionType":53,"userInteractionCount":55},"InteractionCounter",{"@type":54},"ViewAction",12,{"@type":57,"mainEntity":58},"FAQPage",[59,65,69,73],{"name":60,"@type":61,"acceptedAnswer":62},"How do inflation expectations and actual inflation influence each other?","Question",{"text":63,"@type":64},"Survey evidence suggests expectations predict future inflation, but recent experience shows persistent overprediction. The timing of changes in actual and expected inflation indicates they are driven by the same factors.","Answer",{"name":66,"@type":61,"acceptedAnswer":67},"What limitations affect measuring inflation expectations from surveys?",{"text":68,"@type":64},"High costs limit survey frequency and scope, and imperfect methods introduce sampling error. Even with forward-looking elements, the measurement problems are well known.",{"name":70,"@type":61,"acceptedAnswer":71},"What is core inflation and why is it used?",{"text":72,"@type":64},"Core inflation extracts the long-run or permanent component of the measured price index by filtering out transitory special factors such as food and energy supply shocks.",{"name":74,"@type":61,"acceptedAnswer":75},"How does the trimmed-mean core inflation measure work?",{"text":76,"@type":64},"A trimmed mean represents the weighted average of the central portion (the central 85%) of the price-change distribution each month. It reduces the influence of outlying components rather than excluding predetermined sectors.","https://schema.org",{"og:url":32,"og:type":79,"og:title":10,"og:site_name":45,"og:description":12},"article",{"robots":81,"canonical":32},"index,follow",{"doc_id":83,"site_id":7},324754,1790113032,{"code":4,"msg":86,"data":87},"success",[88,92,96,100,105,110,115,119,124,127,131],{"id":22,"doc_module":4,"doc_module_name":25,"category_name":89,"show_sort_weight":90,"slug":91},"Story & 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stability whenhouseholds and businesses need notfactor expectations of changes in theaverage level of prices into their deci-sions.How those expectations form isnot always easy to discern,and theycan for periods of time appear to be atvariance with underlying economicforces.But history tells us that it is eco-nomic and financial forces and theirconsequences for realized inflation thatultimately shape inflation expectations.Alan Greenspan'  \nInflation,as measured by the rate ofchange of the Consumer Price Index(CPD),has slowed substantially in recentyears.Since 1990,it has averaged lessthan 3 percent,compared with an averagerate of about 5 percent in the previousthree years(see figure 1).Similarly,othermeasures,designed to exclude transitoryspecial factors and focus on the so-calledcore or underlying rate of inflation,havealso slowed to around 3 percent.Fromthe perspective of this rear-view mirror,it seems evident that the deceleration inprices has stopped,as both measureshave tended to stabilize around the re-cent lower mean levels.  \nSurvey data on inflation expectations ofhouseholds and professional forecasters,on the other hand,suggest that not all ofthe decline is permanent and that theprice level will tend to rise slightly overthe coming year.Although survey dataprovide some forward-looking element,the problems associated with measuringinflation expectations are well known.  \n# Assessing Progress toward PriceStability:Looking Forward andLooking Backward\n\nThe high cost of obtaining informationvia surveys limits their scope and fre-quency.Ascertaining the appropriate in-formation with the right questions isdifficult,and imperfect survey methodsinvariably lead to sampling error.  \nNevertheless,policymakers cannot al-ways depend on the rear-view mirror as aguide to where the price level might beheaded.Traditional economic thinkingholds that the impact of monetary policyaffects inflation only with a significantlag.Thus,an overly stimulative policystance may not become evident until it istoo late to be tumed around withoutwrenching consequences.  \nSuch a situation is sometimes likenedto a freighter with a full head of steam.The captain must take actions well inadvance if he is to alter the course ofthe ship and avoid treacherous shoals.The experience of the 1970s,whendouble-digit inflation rates reigned,istypically offered as a case in point ofthe failure of policy to act preemp-tively.Most analysts agree that appro-priate countermeasures were not takensoon enough.  \nThe purpose of this Economic Com-mentary is to examine more closely theproblem of assessing the inflationaryeffects of current policy.I first describehow a selected measure ofcore infla-tion excludes potential transitory ef-fects.I review the behavior of thismeasure since 1982,then contrast thepattem of core inflation with house-  \nInflation moderated in the early 1990s,as revealed by the Consumer Price In-dex and measures of core inflation.Sig-nificant changes in inflation have beeninfrequent and rather abrupt over thepast decade and havecoincided withsimilar changes in inflation expecta-tions.Although survey data from bothconsumers and professional forecasterssuggest that expected inflation has beenan unbiased predictor of future infla-tion,recent experience indicates a per-sistent overprediction.Nevertheless,thetiming between changes in actual andexpected inflation implies that both aredriven by the same factors;that is,ex-pectations are formed rationally.  \nhold expectations one year ahead.Al-though their mean inflation expecta-tions have historically been unbiased,households have overpredicted infla-tion in recent years.The survey data ofprofessional forecasters reveal a simi-lar,albeit less pronounced,tendency.  \n## ■ Core Inflation\n\nCore inflation measures are generally de-signed to extract the long-run,or perma-nent,component of the measured priceindex by filtering out transitory specialfactors.For example,food and en","cbCaiqZkylDruEOH","https://ap.wps.com/l/cbCaiqZkylDruEOH","pdf",1109116,"English","# Assessing Progress toward Price Stability: Looking Forward and Looking Backward\n## Core Inflation","[{\"question\":\"How do inflation expectations and actual inflation influence each other?\",\"answer\":\"Survey evidence suggests expectations predict future inflation, but recent experience shows persistent overprediction. The timing of changes in actual and expected inflation indicates they are driven by the same factors.\"},{\"question\":\"What limitations affect measuring inflation expectations from surveys?\",\"answer\":\"High costs limit survey frequency and scope, and imperfect methods introduce sampling error. Even with forward-looking elements, the measurement problems are well known.\"},{\"question\":\"What is core inflation and why is it used?\",\"answer\":\"Core inflation extracts the long-run or permanent component of the measured price index by filtering out transitory special factors such as food and energy supply shocks.\"},{\"question\":\"How does the trimmed-mean core inflation measure work?\",\"answer\":\"A trimmed mean represents the weighted average of the central portion (the central 85%) of the price-change distribution each month. It reduces the influence of outlying components rather than excluding predetermined sectors.\"}]","Assessing Progress toward Price Stability - Looking Forward and Looking Backward | PDF",1789968785,13]