Headline Inflation

Article byWallstreetmojo Team
Reviewed byDheeraj Vaidya, CFA, FRM

What Is Headline Inflation?

Headline inflation is a term used for consolidated inflation figures within the economy. It usually includes commodities like energy (including oil and gas prices), food, and beverages. The food and energy prices make this inflation more volatile and can easily influence it.

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Examples of products considered under this inflation are food grains, vegetables, pulses, fruits, petroleum, etc. Hence, it is considered the price of the basket of all the above products in a particular month compared to the price of all these products in the same month in the previous year.

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Key Takeaways

  • The term headline inflation is based on consolidated inflation figures inside the economy.
  • It includes commodities such as energy(including oil and gas prices), food, and beverages.
  • Approximately 24 to 25 countries use all nations’ wholesale price inflation index. In contrast, the rest countries use the consumer price index related to the inflation rate. Therefore, as per International Monetary Fund IMF statistics, the countries using the wholesale price index to measure the inflation rate do not describe headline inflation half of the world’s entire countries.
  • Currently, the Bank of England and the European Central Bank use this inflation to measure economic price changes.

Headline Inflation Explained

Headline Inflation is a measure of the total economic inflation that includes food and energy prices. It considers the prices of various wholesale products that households usually use daily and for other commercial purposes. Therefore, we can say that this inflation plays a very important role in measuring the price changes in those commodities used by the general public.

Given that retail price holds more importance than wholesale prices, the wholesale market is much more prone to changes in price. Hence, the inflation rate on those wholesale products is more important in day-to-day life.

Deflation affects the economy on a very large scale. Given wholesale price inflationPrice InflationPrice inflation is the rate of increase in the prices of a broad range of essential goods and services across a specific time period, generally a year.read more, it is usually seen that the wholesale market price tends to increase your own business, and there are very few chances of it decreasing. Hence, we can say that changes in the price of wholesale products always lead to inflation rather than deflationDeflationDeflation is defined as an economic condition whereby the prices of goods and services go down constantly with the inflation rate turning negative. The situation generally emerges from the contraction of the money supply in the economy.read more.

Headline inflation calculation considers the costs of food and energy, omitted in the core inflation rate.

Many economists view that online core inflation, headline inflation, has proven its success in a good forecast of future prices. Hence, it is a rational measure of inflation.

This measure is more useful for households since it considers changes in the cost of living of an individual.

Headline inflation chart shows the effect of demand and supply on GDP (Gross Domestic ProductGross Domestic ProductGDP or Gross Domestic Product refers to the monetary measurement of the overall market value of the final output produced within a country over a period.read more).

Headline-Inflation

Inflation – Video Explanation

 
 

Formula

Let us look at the formula to describe headline inflation.
Headline inflation is based on the percentage change in the price index of goods and services of one year compared to another.

Thus, this type of inflation can be calculated as:
Price index of goods + Price index of services = Headline inflation

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Examples

Let us look at some examples to understand how to calculate headline inflation.

Example #1

If the monetary authority of a country calculated the inflation of goods and services of that country to be 5% and then the inflation of only products related to food and energy is 2%, then the country’s headline inflation calculation is 3% (5% – 2%).

Example #2

As per updates regarding the US economy, the headline inflation went up by 1.3%. It is noted that the rise in energy and food price, is now a global concern along with price rises in other domestic goods. The Federal Reserve might have to take more serious steps to control the economic condition.

Current Rate

The different important points related to headline inflation are as follows:

Headline Inflation Vs Core Inflation

Headline Inflation measures the inflation in an economy which includes energy and food prices, whereas core inflation does not include them. However, some basic differences between them are as follows:

Headline InflationCore Inflation
1. It includes food and energy prices.It does not include food and energy prices.
2. It is more volatile.It is less volatile.
3. In developed countries, it is less due to less consumption of food end fuel.In developing countries, it is less because food and energy, which are consumed more, do not form a part of it.
4. It is more relevant in the case of a developing economy.It is more useful for developed economies.

Frequently Asked Questions (FAQs)

What is the difference between core inflation and headline inflation?

Core inflation concerns all commodities, services, and goods in the economy minus the volatile fuel and food prices. At the same time, headline inflation concerns all commodities, services, and goods.

What is another word for headline inflation?

Another word for headline inflation is top-line inflation.

What is the U.S. headline inflation?

As per the Trading Economics global macro models and analysts expectations, the U.S. headline inflation rate is expected to be 7.40 till the quarter’s end.

What is UK headline inflation?

The United Kingdom’s headline inflation rate year over year is 11.052% (compared to 10.096% for the previous month). The inflation from September 2022 to October 2022 was 1.967%.

This article has been a guide to what is Headline Inflation. Here, we explain headline vs core inflation along with its current rate, formula, and examples. In addition, you can learn more about it from the following articles:

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