Core inflation, seasonal adjustment and measures of the underlying trend.

A number of Central Banks use a measure of core inflation as an operational guide and analytical tool for monetary policy. But what is core inflation and why is it considered useful? This paper considers the conceptual basis underlying alternative measures of core inflation and why they are considered effective indicators of the underlying inflationary pressure in the economy. Existing research evaluating the various measures against a range of ideal properties is reviewed. The paper also gauges the value of the core inflation measures against traditional standard statistical approaches using seasonal adjustment and the estimation of the underlying trend.