When energy prices rise faster than other prices, the numerator (CPIF) increases faster than the denominator (the CPIF excluding energy) and the ratio rises. Energy prices rose more slowly than other prices during the period 2012-2016. Since 2016, on the other hand, energy prices have risen faster than other prices in the CPIF. Which properties are desirable for measures of underlying inflation? Which properties are then desirable for measures of underlying inflation? Here are some of those most often discussed in academic literature: 15 The measure of underlying inflation should have the same average as the actual inflation rate. The average for the measure of the underlying inflation should agree with the average of the actual inflation rate. In other words, it is desirable that 15 See, for instance, Clark (2001) for a discussion of this. 8 [19]  measures of underlying inflation neither underestimate nor overestimate the long-term development of inflation, the measure should have the same average as inflation. Policy-makers should thus not be guided by an indicator that can be misleading and can lead to conducting a too tight or too expansionary monetary policy. If the average is the same as for the target variable, it makes communication easier. The measure of underlying inflation should covary with the trend in actual inflation and should have lower volatility. The underlying measure should covary with long-term movements in the target variable.
16  14 12 10 8 6 4 2 0 -2 -4  50 55 60 65 70 75 80 85 90 95 00 05 10 15  Source: Bureau of Labor Statistics  In November 1974, when the rate of inflation according to the consumer price index amounted to more than 12 per cent in the United States, Milton Friedman wrote the following in Newsweek: 5 That monetary expansion on the average could be expected to produce an inflation of something like 6 per cent a year, not of 12 per cent. The difference is attributable to nonmonetary factors, mostly transitory, and so constitutes something of a bubble on the underlying inflation trend. In the past, when such bubbles have broken, the rate of inflation has declined precipitously. For example, in the Korean War bubble, the rate of inflation of consumer prices fell from 10 per cent to 2 per cent in nine months. One now began to use different filtered measures in the econometric research literature. Gordon (1975b) calculates an equation where the aggregate selling prices exclude energy and food prices. He motivated his choice by saying that variations in food and energy prices, particularly in the beginning of the 1970s, were due to other factors than domestic supply and demand. 6 7  5 See Newsweek, 4 November 1974, p. 84. 6 See Gordon (1975b), s 622 “But the magnitude and timing of the 1973-74 explosion in energy prices can only be regarded as noneconomic and exogenous”.