Core inflation

Headline inflation includes everything in the consumer price index, including prices that swing sharply for reasons central banks cannot control, such as oil, gas and harvests. Core inflation removes some of these. In the United States the standard core measure excludes food and energy. The UK's Office for National Statistics, and Eurostat for the euro area, publish core measures that exclude energy, food, alcohol and tobacco. The idea is that what remains, mostly other goods and services, moves more slowly and gives a clearer signal of persistent inflation pressure.

Central banks watch core inflation closely because monetary policy works with long lags. Raising interest rates cannot bring down this month's fuel prices, but it can influence the broader, stickier price rises that tend to feed into wages and expectations. Core inflation is not the inflation households actually experience, though. Food and energy are real costs, and if they rise for a long time, they eventually push up other prices too. Treating core as the ‘true’ figure and headline as noise can understate the pressure on living costs.