Core Inflation

Intermediate

Core inflation is a measure of inflation that excludes items with volatile prices, most commonly food and energy, to show the underlying trend in price changes.

Food and energy prices can swing sharply from month to month because of weather, harvests, geopolitical events and changes in oil supply. These swings can make the headline inflation rate jump around in ways that do not reflect broader price trends.

By removing these volatile items, core inflation gives a clearer picture of whether price pressures are building across the wider economy. For example, if headline inflation jumps from 3% to 5% because of a spike in oil prices, but core inflation stays at 3%, the rise may be temporary rather than a sign of broad inflation.

Central banks pay close attention to core inflation when setting interest rates, because their policy decisions take time to affect the economy and they want to respond to lasting trends rather than temporary shocks.

Core inflation has limitations. Food and energy are important parts of household budgets, so excluding them can make inflation seem less painful than people experience it. And persistent rises in energy prices can eventually feed into other prices, affecting core inflation too.

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