Explain the major difference between the CPI and the core inflation. 0 A. The co

Question

Explain the major difference between the CPI and the core inflation. 0 A. The core inflation excludes goods and services with the most volatile prices, while the CPI includes them. O B. The CPI is based on a fixed basket of goods, while the core inflation includes all domestically produced goods and services. ° C. The core inflation is based on a fixed basket of goods, while the CPI is based on the goods actually consumed 0 D. The CPI is a chain-type price index, while the core inflation uses a market-based approach. Why do you think the Bank of Canada prefers to use the core inflation to measure the inflation rate? OA. Since the CPI excludes goods and services with the most volatile prices, it is more volatile than the core inflation. 0 B. Since the core inflation excludes goods and services with the most volatile prices, it is more stable than the CPI. 0 C. Since the core inflation is based on a fixed basket, it avoids some of the biases inherent in the CPI. O D. Since the CPI is not representative of a typical consumer, the core inflation is a better measure.

Explanation / Answer

(1) Option (A)

While Core inflation rate excludes the price change of goods with volatile prices, CPI includes these goods since typical households consume both volatile and non-volatile goods.

(2) Option (B)

Core inflation rate is more stable and reflects the price change of non-volatile goods.

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