Question

The Labor Department announced August consumer prices rose 1.3% above their year-earlier level while core prices were up 1.7% during the same time period. The difference between these two measurements of inflation indicates

• A. food and energy prices have increased then decreased.
• B. food and energy prices have decreased then increased.
• C. prices for food and energy were increasing more rapidly than prices for other goods.
• D. prices for food and energy were increasing less rapidly than prices for other goods.
• E. None of the above.

Answer 1

Core prices or core inflation does not include the prices of food and energy.

On the other hand, consumer prices or CPI based inflation includes the prices of food and energy.

It has been stated that consumer prices has increased by 1.3% whereas core prices has increased by 1.7%.

This indicates that when food and energy prices are excluded then increase in price level is greater relative to when the price of food and energy are included.

This points to the fact that the prices of food and energy were increasing less rapidly than prices for other goods.

Due to this reason core prices has increased in greater proportion than the consumer prices.

Hence, the correct answer is the option (D).