Core Inflation
Inflation measured excluding food and energy prices, which are highly volatile.
What is Core Inflation?
Core inflation is the rate of price increase in the economy after excluding food and energy, two categories that can be highly volatile due to weather, geopolitical events, and commodity market swings. Central banks and economists use core inflation as a cleaner signal of underlying, persistent inflationary trends — the kind that monetary policy can meaningfully address. The Federal Reserve's preferred core inflation measure is the Core PCE (Personal Consumption Expenditures Price Index), which it targets at 2% annually. 'Headline inflation' refers to total CPI or PCE including food and energy.
Example
In 2022, US headline CPI peaked at 9.1%, driven significantly by gasoline and food prices. Core CPI peaked at 6.6% in September 2022 — lower, but still a 40-year high, confirming that price pressures had spread far beyond energy and food, justifying sustained Fed rate hikes.