When putting in a value for inflation assumptions, should I be thinking overall inflation expectations, or core (ex volatile food and energy components) inflation assumptions. Currently annual inflation is running around 5% but core inflation is running within a narrow 2.3%-2.5% range so determining which inflation parameters to use could have a significant effect on consumption results.
Thanks,
Larry
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Hi Larry,
I'd enter overall inflation. I don't really get core inflation. It doesn't tell us about all the prices we pay and that's what we really care about. Yes, some prices are more volatile than others, but it's still all the prices we pay and it's the average of all the price increases in the past and the propensity for the government to print money to pay for its rising bills that can help us think about what inflation rates to assume for the future.
Thanks