This paper proposes two measures of underlying inflation for euro-area as an alternative to the harmonized index of consumer prices, excluding food and energy products. The first measure, called the Core cycle measure, distinguishes the price changes that respond to the economic cycle (pro-cyclical) from those that do not (acyclical), as the latter are driven by specific trends. In the second measure, called the Common core, the items subject to strong idiosyncratic price changes are removed, assuming that these changes are not generally correlated to the underlying trend of inflation.
Taken together, the two indicators can provide useful information for diagnoses on the dynamics of underlying inflation. However, based on a series of comparative exercises, neither the measures traditionally used nor those proposed here have properties that make them exclusively preferable to others. It is appropriate to jointly monitor several indicators for an accurate assessment of price dynamics in the medium term.
