By Claudia Hirsch
NEW YORK (MNI) Philadelphia Federal Reserve President Charles
Plosser Friday said headline inflation — not core inflation which
excludes volatile food and energy components — is really the only
inflation that “matters.”
“What matters? Headline inflation. That’s all that matters at the
end of the day – what consumers pay,” said Plosser, answering audience
questions following a midday speech at a Shadow Open Market Committee
event in New York.
“Core doesn’t matter. Core only matters to the Fed … to the
extent that it helps predict headline inflation over a reasonable
horizon,” he said.
Plosser, a voter this year on the Fed’s policy-setting Federal Open
Market Committee, said core inflation figures don’t do a very good job
in predicting headline inflation.
The Philadelphia Fed president also said oil prices themselves
won’t spark inflation, but keeping monetary policy “easier, longer” in
response to energy costs would.
“The reason that oil prices worry me is because there’ll be more
pressure to keep monetary policy easier, longer,” he said. To do that
would “ensure that it generates inflation.”
Pointing to the hyperinflation experienced by the U.S. in the
1970s, Plosser said, “It wasn’t the oil prices per se, it was the
reaction of the Fed to the oil prices … which ultimately generated
massive inflation.”
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