What it is
Core inflation is a measure of inflation that removes volatile components, specifically food and energy prices, from a broader inflation index like the Consumer Price Index (CPI) or Personal Consumption Expenditures (PCE) price index. Food and energy prices are often subject to rapid and unpredictable swings due to factors like weather events, geopolitical tensions, or supply disruptions. By excluding these, core inflation provides a clearer picture of underlying, longer-term inflationary trends in the economy.
Central banks, particularly the Federal Reserve, closely monitor core inflation metrics to make monetary policy decisions. They believe core inflation is a better indicator of future inflation and the effectiveness of their policies, as it reflects more persistent price pressures. If core inflation is rising, the Fed might consider raising interest rates to cool the economy. Investors track core inflation data to anticipate the Fed's next moves, which can influence bond yields, stock prices, and currency valuations.
Why it matters
Core inflation helps the Fed determine interest rate policy. Its trends can signal future rate changes, impacting your investments and borrowing costs.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice