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this is because Krugman make a difference between core inflation and price index.
I think I have understood that the inflation economists usually talk about is a measure of the economical activity: if and when the economical activity is running at or near full potential, you have what they call core inflation.

If and when you have resources shortage, you will also have price inflation, but at the same time you will not be running at full capacity.

The core inflation measurement is meant to get the difference between a capacity shortage and a resource shortage.

The end effect for the consumer is the same. But applicable solutions are different.

by Xavier in Paris on Mon Nov 18th, 2013 at 05:25:19 AM EST
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