Core inflation is highly persistent. Headline inflation mean-reverts around core inflation. Reported medical (health care) inflation is expected to exceed headline inflation in the longer run due to statistical offices not adjusting price calculations in medical (health care) services for quality improvements. U.S. inflation rates can be shown to be cointegrated, which means that there are long-term relations among inflation rates. Deriving these long-term relations allows the practicing actuary to map a trajectory for the rate of inflation of interest relative to the forecast trajectory of the Federal Reserve's official measure of inflation, which is the rate of growth of the PCE deflator. The Federal Reserve's inflation target of 2 percent provides an anchor for the long-term relation of an inflation rate of interest to the Federal Reserve's official rate of inflation.
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