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.
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.
Table of contents
- 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., 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..
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.).
Inflation – Video Explanation
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
Let us look at some examples to understand how to calculate headline inflation.
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%).
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.
The different important points related to headline inflation are as follows:
- One should note that almost 24 to 25 countries use all nations’ wholesale price inflation index. In contrast, the rest of the countries use the consumer price indexConsumer Price IndexThe Consumer Price Index (CPI) is a measure of the average price of a basket of regularly used consumer commodities compared to a base year. The CPI for the base year is 100, and this is the benchmark point. related to the inflation rate. Therefore, the countries using the wholesale price indexUsing The Wholesale Price IndexThe Wholesale Price Index tracks the price movement of products in a set territory and wholesaler jurisdiction. Wholesalers provide, manage, and control commodities, usually commonly traded goods, before they are sent to retailers. for measuring the inflation rate does not cover even half of the world’s entire countries as per International Monetary Fund IMF statistics.
- It is measured by change in the wholesale price of multiple products and services of a particular month in correspondence to the same month in the preceding year.
- It is estimated in March, the price change in the wholesale market of the particular product is compared with the prices in March in the preceding financial year.
- Bank of England and the European Central BankThe European Central BankThe European Central Bank is the apex bank of the member European countries, monitoring the banking and financial functions of all member countries in order to maintain the price stability of the European currency, the Euro. are currently using this headline inflation chart to measure the price changes in the economy. However, the United States does not focus much on this type of inflation; rather, it uses the court inflation rate to measure the changes in the economy.
- The core inflation rate is another rate used by countries to measure inflation which is based mostly on the retail prices of Asus goods and services, excluding costs of food and oil as stated above. Hence, the core inflation rate of gold is much more important in various industries.
- The Federal Open Market Committee (FOMC) of the United States emphasizes long-run headline inflation.
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:
|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)
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.
Another word for headline inflation is top-line 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.
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: