Core inflation excludes volatile food and energy to reveal underlying price trends. Two widely cited measures are Core CPI (Consumer Price Index) and Core PCE (Personal Consumption Expenditures Price Index), both of which remove food and energy components from their respective price indexes.
Economists and policymakers monitor core inflation to assess whether inflation pressures are persistent rather than temporary. Central banks often refer to core inflation when evaluating monetary policy and the path of the long-run inflation outlook.
Core CPI comes from the Bureau of Labor Statistics and Core PCE from the Bureau of Economic Analysis; they differ in scope and methodology. Core CPI excludes food and energy in the consumer price index and uses a fixed basket of goods and services, while Core PCE excludes those items in the broader PCE price index and allows changing expenditure weights over time, which can produce different readings.
Because it excludes food and energy, core inflation may understate inflation in periods when those components are driving living costs; it can also miss price pressures concentrated in housing or services. It should be considered alongside headline inflation to get a fuller picture of price changes in the economy.
Example: In a monthly release, core CPI rose 0.3% while headline CPI rose 0.6% because of energy prices, illustrating how core inflation can diverge from the headline reading.
Inflation · CPI (Consumer Price Index) · PCE (Personal Consumption Expenditures) Price Index · Core PCE · Headline inflation · Monetary policy · Sticky prices