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.