Definition
Core inflation is the inflation rate calculated without food and energy prices. Gasoline, heating oil and many groceries can jump or slump by double digits within a few months because of a hurricane, a war, a drought or a bird-flu outbreak. Those swings rarely say much about where inflation will be next year, so economists strip them out to see the underlying trend. The two common versions are core CPI (from the Consumer Price Index) and core PCE (from the PCE price index the Federal Reserve targets).
How it works
Core inflation uses the same price data as the headline index; the statistical agency simply re-weights the basket without the food and energy categories – roughly a fifth of the CPI. Everything else stays: rent, cars, insurance, medical care, airline fares, clothing and services of all kinds. The 12-month change of that narrower index is the core inflation rate.
When headline inflation is above core, food and energy are pushing prices up; when it is below, they are holding inflation down.
Example
In mid-2022 headline CPI inflation was about 9% while core was near 6%: much of the extra came from gasoline and food after the invasion of Ukraine. A year later the order flipped. In June 2023 headline inflation had dropped to about 3% because energy prices had fallen back, yet core inflation was still close to 5%, a sign that price pressure had spread to rents, services and wages. That gap is why central banks kept rates high even after the headline number improved.
Core inflation in history
Readings at turning points, taken from the same data as the chart above.
| Date | Core CPI | Headline CPI | What was happening |
|---|---|---|---|
| Dec 1974 | 11.3% | 12.3% | First oil shock: rising costs spread from energy into almost everything else. |
| Jun 1980 | 13.6% | 14.4% | Record high for core inflation. |
| Jul 2008 | 2.5% | 5.6% | Oil near its all-time high: headline far above core. |
| Jul 2009 | 1.5% | −2.1% | Recession and an energy-price collapse: headline below zero, core still positive. |
| Oct 2010 | 0.6% | 1.2% | Record low for core inflation after the financial crisis. |
| Jun 2022 | 5.9% | 9.1% | Headline inflation peaks, driven by energy and food. |
| Sep 2022 | 6.6% | 8.2% | Core inflation peaks three months later, as services catch up. |
| Sep 2026 | 2.6% | 3.7% | Latest reading. |
Monthly values. Explore every month on the Core Inflation Rate chart.
Common mistakes
- “Core inflation ignores what people really pay for.” Core is not meant to measure the cost of living. It is a forecasting tool: over long periods headline and core average out to similar rates, and core tends to predict next year’s headline better than headline itself.
- Treating core as always lower Core can be higher than headline, as it was in 2009, 2015 and 2023, whenever energy prices are falling.
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Core inflation: questions and answers
Why are food and energy excluded from core inflation?
Because their prices are driven largely by supply shocks – weather, wars, OPEC decisions, animal diseases – that tend to reverse, and that monetary policy can do little about in the short run.
Which core inflation does the Federal Reserve watch?
Core PCE inflation. The Fed’s official 2% goal is for headline PCE inflation, but policymakers track core PCE closely as the best guide to the trend.