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Central banks should target core inflation: IMF

Central banks should target core inflation: IMF (by Greg Robb)

WASHINGTON (MarketWatch) - Central banks should target core inflation measures that strip out volatile food and energy prices, according to an International Monetary Fund report released Wednesday. Commodity prices make it too hard to meet target that includes all prices. "It is better to target what you can hit," the IMF said in a chapter of its twice-a-year world economic outlook report. In a separate chapter, the agency said fiscal austerity programs can narrow a country's trade deficit, but the U.S. deficit reduction to date has likely been too small compared with other countries to have a meaningful impact. When a country trims its deficit, the trade balance is helped in two ways: weaker imports from less demand and stronger exports from a cheaper currency, the IMF said. For countries in the euro zone, the adjustment is more painful because of the fixed currency. While the adjustment does take place, it works through wages and price compression instead of currency depreciation, the study said.