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.

• 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 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 inflation, 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 deflation.

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 Product).

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.

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.

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 index related to the inflation rate. Therefore, the countries  using the wholesale price index 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 Bank 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 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:

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:

• Demand Pull Inflation Example
• Inflation Accounting
• Inflation Expectations
• Cost Push Inflation Example