Final answer:
The headline inflation rate or CPI includes volatile food and energy prices, whereas the core inflation rate excludes these items for a more stable view of inflation trends. The BLS publishes both to inform both households about cost of living changes and to guide government policy with a stable inflation measure, with each serving different audiences and purposes.
Step-by-step explanation:
The distinction between the headline inflation rate and the core inflation rate published by the Bureau of Labor Statistics (BLS) lies in the items they include. The headline inflation rate, also known as the Consumer Price Index (CPI), measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. This rate is comprehensive, including food and energy prices, which can be quite volatile. On the other hand, the core inflation rate excludes these volatile food and energy prices to provide a more stable view of inflation trends.
The BLS publishes both rates because they serve different purposes. The CPI is useful for households to understand changes in their cost of living, whereas the core inflation rate is a more reliable measure for making government policy changes, as it reflects the underlying inflation trends without the short-term volatility caused by food and energy prices. As expressed by former Federal Reserve Chairman Ben Bernanke, the core inflation index is a more consistent guide for monetary policy and it helps to avoid an overreaction to temporary inflationary shocks that are not indicative of longer-term trends in the economy.
Whether more attention should be given to one rate over the other depends on the context. For everyday consumers looking at their personal expenses, the CPI may be more relevant, while policymakers and economists might focus more on the core inflation rate when making decisions about monetary policy. Both rates provide valuable information, but for different audiences and purposes.