What is Headline Inflation?

Headline inflation is a term used for consolidated inflation figures within the economy. It usually includes commodities like energy (including oil and gas prices), food, and beverages. Examples of products considered under headline inflation are food grains, vegetables, pulses, fruits, petroleum, fuel, butter, salt, spices and condiments, dairy products, kerosene, diesel, tools, jigs, equipment, accessories, cosmetics, etc. Hence, it is considered the price of the basket of all the above products in a particular month compared to the price of all these products in the same month in the previous year.

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Key Takeaways

  • The term headline inflation is used for consolidated inflation figures inside the economy.It includes commodities such as energy(including oil and gas prices), food, and beverages.Approximately 24 to 25 countries use all nations’ wholesale price inflation index. In contrast, the rest countries use the consumer price index related to the inflation rate. Therefore, as per International Monetary Fund IMF statistics, the countries using the wholesale price index to measure the inflation rate do not cover even half of the world’s entire countries.Currently, the Bank of England and the European Central Bank use this headline inflation to measure economic price changes.

Features of Headline Inflation

  • It considers the prices of various wholesale products that households usually use daily and for other commercial purposes. Therefore, we can say that headline inflation plays a very important role in measuring the price changes in those commodities used by the general public.Given that retail price holds more importance than wholesale prices, the wholesale market is much more prone to changes in price. Hence, the inflation rate on those wholesale products is more important in day-to-day life.Deflation affects the economy on a very large scale. Given wholesale price inflationPrice InflationPrice inflation is the rate of increase in the prices of a broad range of essential goods and services across a specific time period, generally a year.read more, it is usually seen that the wholesale market price tends to increase your own business, and there are very few chances of it decreasing. Hence, we can say that changes in the price of wholesale products always lead to inflation rather than deflationDeflationDeflation is defined as an economic condition whereby the prices of goods and services go down constantly with the inflation rate turning negative. The situation generally emerges from the contraction of the money supply in the economy.read more.Headline inflation considers the costs of food and energy, omitted in the core inflation rate.Many economists view that online core inflation, headline inflation, has proven its success in a good forecast of future prices. Hence, it is a rational measure of inflation.This measure is more useful for households since it considers changes in the cost of living of an individual.Headline inflation shows the effect of demand and supply on GDP (Gross Domestic ProductGross Domestic ProductGDP or Gross Domestic Product refers to the monetary measurement of the overall market value of the final output produced within a country over a period.read more).

Limitations of Headline Inflation

Though headline inflation is useful in the ways mentioned above, there are also certain disadvantages. The various disadvantages related to headline inflation are as follows: –

  • This measure is based on wholesale prices in the country. However, wholesale prices have lost their relevance after the government changed its frequency of review to a monthly basis.A sudden and rapid increase in the prices of vegetables and other food items and prices of oil and gasses makes the headline inflation rate boost up in a very short span. Hence, this inflation rate may cause havoc in people’s minds referring to such an inflation rate.Central Banks normally use core inflation as a measure of inflation and not the headline inflation rate since the headline inflation measure is much more volatile.It is not a good indicator and a predictor over a short period since food and energy prices are highly volatile compared to other products in the economy.

Important Points

The different important points related to the headline inflation are as follows:

  • One should note that almost 24 to 25 countries use all nations’ wholesale price inflation index. In contrast, the rest of the countries use the consumer price indexConsumer Price IndexThe Consumer Price Index (CPI) is a measure of the average price of a basket of regularly used consumer commodities compared to a base year. The CPI for the base year is 100, and this is the benchmark  point.read more related to the inflation rate. Therefore, the countries  using the wholesale price indexUsing The Wholesale Price IndexThe Wholesale Price Index tracks the price movement of products in a set territory and wholesaler jurisdiction. Wholesalers provide, manage, and control commodities, usually commonly traded goods, before they are sent to retailers.read more for measuring the inflation rate does not cover even half of the world’s entire countries as per International Monetary Fund IMF statistics.It is measured in various countries on your basis; that is, change in the wholesale price of multiple products and services of a particular month is measured in correspondence to the same month in the preceding year.It is estimated in March, and the price change in the wholesale market of the particular product is compared with the prices in March in the preceding financial year.Bank of England and the European Central BankThe European Central BankThe European Central Bank is the apex bank of the member European countries, monitoring the banking and financial functions of all member countries in order to maintain the price stability of the European currency, the Euro.read more are currently using this headline inflation to measure the price changes in the economy. However, the United States does not focus much on headline inflation; rather, it uses the court inflation rate to measure the changes in the economy.The core inflation rate is another rate used by countries to measure inflation which is based mostly on the retail prices of Asus goods and services, excluding costs of food and oil as stated above. Hence, core inflation rate gold is much more important in various industries than headline inflation.The Federal Open Market Committee (FOMC) of the United States emphasizes long-run headline inflation.

Conclusion

  • Two things are clear from the above discussion: there can be different views from other people and countries on headline inflation and core inflation. The measure of inflation has its pros and cons for various industries and professions. Some countries have accepted this, while other countries have accepted core inflation.Both measures have been used in different fields. However, when it comes time to measure changes in the price index of wholesale goods and services, the headline index plays a very important role in providing a figure of modifications compared to two corresponding months in the preceding year.While considering the above advantages and disadvantages along with examples stated, it can be said that headline has been used in a reducing number after various government policies focusing on retail prices rather than wholesale prices for considering the changes in the whole economy. Hence, the headline inflation rate has decreased in multiple countries, including the United States of America.

This article has been a guide to Headline Inflation and its meaning. Here, we discuss the headline inflation rate with the example, advantages, and disadvantages. In addition, you can learn more about it from the following articles:

Core inflation concerns all commodities, services, and goods in the economy minus the volatile fuel and food prices. At the same time, headline inflation concerns all commodities, services, and goods.

Another word for headline inflation is top-line inflation.

As per the Trading Economics global macro models and analysts’ expectations, the U.S. headline inflation rate is expected to be 7.40 till the quarter’s end.

The United Kingdom’s headline inflation rate year over year is 11.052% (compared to 10.096% for the previous month). The inflation from September 2022 to October 2022 was 1.967%.

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