When I interviewed St. Louis Fed President James Bullard last month, he said policymakers might need to focus more on “headline” inflation because it’s been persistently above “core” inflation. The core number excludes food and energy, which, as several critics have noted, is fine as long as you live in an unheated cave and don’t need to eat.

Now, though, a Federal Reserve Board staff economist says the Fed is right to focus on core inflation. The traditional justification for using the core number is that by leaving out food and energy prices, which are extremely volatile, one can better discern the underlying, long-term trend. That’s still true, Michael T. Kiley writes:

in recent data, the trend is best gauged by focusing solely on prices excluding food and energy prices.

Kiley says his research confirms earlier findings that “oil prices have had little effect on subsequent inflation in recent data.”

I wonder whether Bullard will find this paper convincing. From a speech he gave in June, here are more of his thoughts about the headline-vs.-core issue:

I believe that consideration has to be given to the hypothesis that different forces have driven the relative prices of food and energy in the recent past — namely, shifts in demand in world markets. These forces are likely to persist for some time. In particular, I have in mind rapid increases in standards of living in large emerging-market economies. …

… Nevertheless, a plausible case can be made that current trends in these relative prices will persist and that, therefore, headline measures of inflation will remain above core measures.

Should policymakers take into consideration persistent differences in headline and core measures of inflation? I believe that consistency requires attention to such differences in the formulation of policy. Unless there are compelling reasons to do otherwise, policy has to focus on the prices actually faced by households and businesses.