Core CPI measures the change in prices of all items in the Consumer Price Index excluding food and energy components. By stripping out these volatile categories, Core CPI provides a cleaner signal of the underlying inflation trend.

Why Exclude Food & Energy?

Food and energy prices are heavily influenced by supply shocks (weather, geopolitics, OPEC decisions) that may not reflect broad-based inflationary pressures. A hurricane that temporarily spikes gasoline prices, for example, doesn't necessarily mean the economy is overheating. Core CPI filters out this noise.

Fed's Preferred View

While the Federal Reserve officially targets inflation using the PCE Price Index, Core CPI receives enormous market attention because:

Recent Trends

Core CPI tends to be "stickier" than headline CPI, meaning it changes more slowly. Services inflation (especially shelter/rent) is a major driver of Core CPI and often the last component to decelerate during a disinflationary cycle.

Market Impact

Traders often focus more on Core CPI than headline CPI during earnings and data releases, as it better reflects the trend the Fed is likely to respond to with policy changes.