Core inflation
core CPI · core PCE
Core inflation strips out volatile food and energy prices to show the underlying trend in inflation, filtering out temporary shocks.
In plain terms
Gasoline and vegetable prices swing with the weather, wars and oil producers' decisions. Leaving them out shows how fast prices are rising underneath. That is core inflation.
US core CPI excludes food and energy. The Fed's 2% target is defined using the Personal Consumption Expenditures (PCE) price index, and it also watches core PCE closely.
Why it matters
Central banks worry more about persistent price pressure than about a temporary oil spike. If headline inflation falls but core stays high, they are unlikely to rush into rate cuts. Rents and service prices are especially sticky because they rarely come back down once they rise.
How it connects to markets
- Core above expectations: often moves markets more than the headline number, pushing yields and the dollar up and weighing on growth stocks
- High headline but steady core: may be treated as a temporary energy effect, so the central bank may not rush to tighten