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What’s The Difference Between Headline Inflation and Core Inflation?

Your plate of chicken rice is still increasing, even though you may have read that headline inflation was 0% for January.

 

In late February, the Ministry of Trade and Industry (MTI) announced changes to the consumer price for January 2018. This is done regularly, and many news media often pick up the news on the day itself.

We read several news articles that day. Quite a few had stated that inflation levels fell to 0% for January. We’re not going to debate whether this is good or bad for the economy and Singaporeans, that’s meant for a whole other article. Rather, we look at whether this is entirely accurate.

CPI-All Items Inflation (Headline Inflation) VS MAS Core Inflation

On the internet, many readers may have just read that headline and registered that Singapore’s economy was flat in January or even that prices for consumers hadn’t increased in January.

This would have been inaccurate as the MAS Core inflation actually rose 1.4%. The question then arise: which level of inflation should Singaporeans look at and what’s the difference between the two?

(Just so we’re clear the news articles also mentioned MAS Core inflation rising by 1.4% within their articles.)

Read Also: An Easy Example Of How Inflation Works

Firstly, since the MTI announces both levels of inflation, it’s important to keep track of both. The important thing to note is that we shouldn’t just look at one level of inflation, such as the headline inflation (being 0%) and thinking something when we would have thought an entirely different thing if we knew the MAS Core inflation level was different (increased 1.4%).

Defined in its report, the CPI, or Consumer Price Index, measures the average price changes in a fixed basket of consumption goods and services commonly purchased by resident households over time.

We can then understand the CPI-All Items inflation as measurement of average price changes in all major consumer component expenses. This includes food; clothing & footwear; housing & utilities; household durables & services; health care; transport; communication; recreation & culture; education and miscellaneous goods & services. If you want to know how these broad categories are further broken down, you can read it up on the Singapore Department of Statistics.

Each category, and sub-category, of items are broken down into weightages. For example, food represent 21.7% of the index, and within it, bread & cereal makes up 1.41%, meat represents 1.20%, fish & seafood represents 1.18%, and so on.

Read Also: 5 Uninteresting Facts About Inflation

The MAS Core inflation excludes accommodation and private road transport. These are subsets of household & utilities and transport respectively. The main reason could be that accommodation may be skewed by large swings in condominiums and landed property prices, and private road transport could be affected by car prices, which are artificially inflated and not representative of an expense many Singaporeans have to pay for.

Why This Matters

It is important to understand that the MAS Core inflation does not include accommodation and private road transport – two major goods and services that are both extremely hefty in price and many ordinary Singaporeans do not count as part of our everyday expenses.

However, this also means that when the headline inflation, or CPI-All Items inflation, is reported to be 0%. It takes accommodation and private road transport into consideration, which makes up 2.29% and 1.15% of the entire index respectively. This is quite substantial.

Knowing that the MAS Core inflation inched up 1.4% means that the combination of housing and car prices may have declined (because the CPI-All Items inflation is at 0%), but also that there was inflation in the prices of goods and services that ordinary Singaporeans spend on every day.

In January, the price of everyday items such as food, healthcare and fuel & utilities went up 1.1%, 2.3% and 8.4% respectively. Other major goods and services components also went up in general. Accommodation prices declined 5.3%, which skewed the CPI-All Items inflation. Interestingly, prices of private road transport had also increased 1.6%.

Read Also: 4 Investments That Naturally Hedges Against Inflation In Singapore

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