A focus on core inflation, which excludes these items, might be viewed as indicating that monetary policy makers are out of touch with what consumers really care about. Wouldn't it be better for monetary policy authorities to focus on headline inflation so that they include food and energy in their monitoring of consumer price inflation?
As I will argue, this is not an either-or decision. It does indeed make sense for central banks to emphasize headline inflation when determining the appropriate stance of monetary policy over the medium run, but policymakers also are right to emphasize core inflation when deciding how to adjust policy from meeting to meeting. Why?