What is Core Inflation?

What is Core Inflation?

Core inflation measures price changes excluding volatile items such as food and energy. Central banks focus on core inflation because it reflects underlying trends that guide monetary policy.

Why Core Inflation Matters

• Policy guidance: Higher core inflation increases the likelihood of rate hikes.
• Expectations management: Stable core readings support credibility of inflation targets.
• FX impact: A surprise increase can strengthen the domestic currency.
• Risk sentiment: Persistent core inflation keeps investors wary of prolonged tightening.

Trading with Core Inflation

• Compare to forecasts: Deviations from expectations move currency pairs.
• Watch policy reaction: Track central-bank commentary after releases.
• Cross-asset signals: Bond yields respond quickly to core inflation surprises.
• Combine with growth data: Stagflation risk emerges when core inflation is high but growth is weak.

Practical Playbook

• Define context on higher timeframes, then execute on intraday charts.
• Wait for confirmation (acceptance, momentum, or confluence) before entry.
• Size positions conservatively and place stops at clear invalidation levels.
• Adapt to session dynamics; conditions shift between Asia, London, and New York.

Common Pitfalls

• Forcing trades without alignment across timeframe, structure, and catalyst.
• Ignoring spreads/slippage during news or thin liquidity.
• Moving stops or adding to losers instead of honoring the plan.

Illustrative Example

Build a simple playbook: identify bias, mark key zones/levels, define triggers and invalidation, and pre‑set targets for 2–3R. Journal results by session and setup to refine rules. Over time, consistency—not prediction—drives outcomes.

Practical Playbook

• Define context on higher timeframes, then execute on intraday charts.
• Wait for confirmation (acceptance, momentum, or confluence) before entry.
• Size positions conservatively and place stops at clear invalidation levels.
• Adapt to session dynamics; conditions shift between Asia, London, and New York.

Common Pitfalls

• Forcing trades without alignment across timeframe, structure, and catalyst.
• Ignoring spreads/slippage during news or thin liquidity.
• Moving stops or adding to losers instead of honoring the plan.

Illustrative Example

Build a simple playbook: identify bias, mark key zones/levels, define triggers and invalidation, and pre‑set targets for 2–3R. Journal results by session and setup to refine rules. Over time, consistency—not prediction—drives outcomes.