Punit Kumar

Why Core Inflation?

In my opinion the best definition of inflation is increase in money supply. That is what the "Austrian Economist" use and it was confirmed by studies of Milton Friedman. Whenever there is increase in money supply there is boud to be inflation. If you look at money supply increase over the last 20 years or so, it has been increasing a the pace of 6-7%/year. So inflation in the long-term is going to be around that number.

There are many inflation deflators used to underestimate inflation if you use CPI as inflation indicators. For example, 1) Hedonistic adjustments
2) Using Substitution pricing 3) using rent equivalents for housing.

Also, many costs including medical costs, cost of college education, tuition, fees, books etc are under-represented in calculation of CPI.