Within this set, CPIX has been our main guide since 2001. 14 Although CPIX isn’t a perfect measure of underlying inflation, it has a number of advantages. It depicts relatively low volatility and is fairly straightforward to calculate. 15 However, excluding some of the most volatile components from the CPI doesn’t guarantee that the resulting measure will always be smooth.
Some components included in CPIX (for instance, electricity) have shown fairly high volatility in recent years, while others, such as the prices of autos and certain regulated services, have tended to move countercyclically, thereby obscuring the relationship between CPIX and the output gap. 16 Alternative measures of core inflation provide additional valuable information in this context.