Podcast Appearances
So core inflation, you're taking out stuff that's a bit jumpy, a bit volatile.
So, yeah, things like food, petrol prices, you know, they can jump up and down for,
For various reasons, food prices could go up because of a weather event or that sort of thing, which obviously we're experiencing at the moment.
One-offs, I mean, things like, say, GST tax changes, things like that, that, you know, yep, it's captured in the CPI, but it's not necessarily a sort of underlying or trend thing.
Now, it also matters because the Reserve Bank's allowed to sort of look through those things and focus on the underlying trend.
So you probably want to have a measure of underlying trend.
But also, I think there's a school of thought that says inflation expectations are also driven by inflation.
theoretically an underlying trend number now i'd i'd be a little bit cautious of that about that because i think probably what inflation expectations are also driven by is what people see in the newspapers and you know us talking about and that's the headline inflation rate you know they see 3.1 above um above target and go oh inflation's out of control and that that drives their expectations so yeah it might be about underlying or core inflation but also i think it's
going to be about headline two so i probably wouldn't overplay that but there is a school of thought that says inflation expectations are driven by by core inflation and of course inflation expectations are what the reserve bank pays attention to as well because you know they're really conscious of well if people think prices are going to go up in future maybe they will go up so we want to keep not only actual inflation but also inflation expectations under control
So all of those things, I think, are background.
What are some of the measures?
Well, Stats New Zealand has in their detailed spreadsheets, they have a measure they look at which takes out food, household energy and vehicle fuels.
So some of those things I talked about, electricity and petrol and stuff, that measure was two and a half percent.
And now that was unchanged from Q3.
So, you know, if you want to look at that measure as your definition of core inflation, it was still kind of OK, you know.
maybe you'd want to see it closer to two or even a little bit below but two and a half percent still within target so that's sort of good there's another measure they put out called a trimmed mean which basically means you put all your goods and services in order of the ones that went up the most and the ones that went up the least and you take off a certain
number from the top and a certain number from the bottom and then take your cpi or your inflation measure so um you know you can take off the top 20 or the top whatever you want um but a couple of the numbers in there if you do what's called a 20 trim means so you take off 10 from the top and 10 from the bottom so you're taking off 20 in total uh that measure not ideal it went up from 2.4 to 2.7 so you know that's kind of reflecting that
that overall increase at the headline level, but 2.7% still within target, maybe you don't get too concerned about that.
A 10% trim, for example, if you take off 5% from the top, 5% from the bottom, that measure went from 2.6 to 2.9, so that's getting closer to the top of that target band.