New research suggests excluding only gasoline and fuel prices could improve Fed inflation tracking without removing food costs.
A St. Louis Federal Reserve research paper proposes a revised core inflation measure that excludes only gasoline and fuel prices, rather than both food and energy. The study argues energy goods are the most volatile prices, while food prices move closely with overall inflation and should not be stripped out.
The current core inflation measure removes about 12% of consumer spending, but the proposed alternative would retain nearly 97%. This approach aims to smooth short-lived oil price spikes while better reflecting underlying inflation trends, according to the research.
The findings come as Fed Chair Kevin Warsh prioritizes inflation measurement frameworks. Markets may scrutinize Fed communications for shifts in how officials discuss underlying inflation amid volatile energy prices tied to geopolitical risks.