The Fed Should Correct an Oversight on Food Inflation
It's time to rethink core inflation as we know it.
Do food prices matter?
Photographer: Charly Triballeau/AFP via Getty Images
The Federal Reserve technically targets 2% overall inflation, as measured by the personal consumption expenditures deflator. But policymakers spend an inordinate amount of time talking about measures of core prices, which exclude food and energy, and that undoubtedly influences their decisions. Since the 1970s, economists have used the concept of core inflation to help identify what they thought was the signal in the noise — the underlying trend amid the vagaries of commodity-induced distractions.
Recently, Federal Reserve Bank of Kansas City President Jeff Schmid offered what he called a “radical suggestion” that we may need to rethink the concept of “core” to include food prices. I wholeheartedly agree with President and Chief Executive Officer Schmid, whose district encompasses many of America’s top agriculture states.