## Measuring U.S. Core Inflation: The Stress Test of COVID-19

_IMF Working Papers, December 17, 2021_

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**Canonical URL:** [Measuring U.S. Core Inflation: The Stress Test of COVID-19](https://www.imf.org/en/publications/wp/issues/2021/12/17/measuring-u-s-511054)

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## Bibliographic details
- Authors: Laurence M. Ball, Daniel Leigh, Prachi Mishra, Antonio Spilimbergo
- Published: December 17, 2021
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781616357580.001

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### Summary findings
- Large price changes in industries affected by the COVID-19 pandemic caused erratic fluctuations in the U.S. headline inflation rate during 2020-2021.
- The Federal Reserve’s preferred core measure, the inflation rate excluding food and energy prices (XFE), performed poorly: over most of 2020-21, XFE was almost as volatile as headline inflation.
- Core measures that exclude a fixed set of additional industries (for example, the Atlanta Fed’s sticky-price inflation rate) were less volatile than XFE.
- The least volatile core measures were those that filter out large price changes in any industry, notably:
  - the Cleveland Fed’s median inflation rate, and
  - the Dallas Fed’s trimmed mean inflation rate.
- These filtered core measures followed smooth paths: drifting down when the economy was weak in 2020 and then rising as the economy rebounded.
- Overall conclusion: the case for the Federal Reserve to move away from the traditional XFE measure of core strengthened during 2020-21.

### Methodology and measures compared
- Comparison focused on alternative approaches to filtering out transitory effects of large industry-specific price changes and measuring the underlying or core level of inflation over 2020-2021.
- Approaches compared included:
  - XFE (inflation excluding food and energy prices);
  - fixed-set exclusions (e.g., Atlanta Fed’s sticky-price inflation rate);
  - filtering out large price changes in any industry (e.g., Cleveland Fed median, Dallas Fed trimmed mean).

### Implications for analysis and policy
- Measures that dynamically filter out large industry price changes provide smoother, more stable signals of underlying inflation during episodic shocks like COVID-19.
- Relying on XFE during 2020-21 could have led to misleading assessments of underlying inflation dynamics because XFE mirrored headline volatility.
- Policymakers and central banks may obtain more reliable short-term core inflation signals by incorporating median or trimmed-mean style filters rather than fixed-exclusion XFE alone.
- The paper’s evidence supports reconsideration of the Federal Reserve’s reliance on XFE as its primary core inflation guide during periods with large, sectoral price dislocations.

### Key metadata and scope
- Time span analyzed: 2020-2021 (frequently referenced as 2020-21 in the text).
- Publication date: December 17, 2021.
- Pages: 27.
- Series: Working Paper No. 2021/291.

*Source: Measuring U.S. Core Inflation: The Stress Test of COVID-19 (IMF Working Papers).*

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_Source: https://www.imf.org/en/publications/wp/issues/2021/12/17/measuring-u-s-511054_