Discussion paper

DP17002 Measuring U.S. Core Inflation: The Stress Test of COVID-19

Large price changes in industries affected by the COVID-19 pandemic have caused erratic fluctuations in the
U.S. headline inflation rate. This paper compares alternative approaches to filtering out the transitory effects of
these industry price changes and measuring the underlying or core level of inflation over 2020-2021. The Federal
Reserve’s preferred measure of core, the inflation rate excluding food and energy prices (XFE), has performed
poorly: over most of 2020-21, it is almost as volatile as headline inflation. Measures of core that exclude a fixed
set of additional industries, such as the Atlanta Fed’s sticky-price inflation rate, have been less volatile, but the
least volatile have been measures that filter out large price changes in any industry, such as the Cleveland Fed’s
median inflation rate and the Dallas Fed’s trimmed mean inflation rate. These core measures have followed
smooth paths, drifting down when the economy was weak in 2020 and then rising as the economy has


Ball, L, D Leigh, P Mishra and A Spilimbergo (2022), ‘DP17002 Measuring U.S. Core Inflation: The Stress Test of COVID-19‘, CEPR Discussion Paper No. 17002. CEPR Press, Paris & London. https://cepr.org/publications/dp17002