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Core Inflation

Core inflation measures the underlying rate of inflation in an economy by excluding volatile items such as food and energy prices, which are subject to short-term fluctuations. It provides a clearer view of long-term inflation trends by focusing on the more stable components of consumer prices. Central banks and policymakers closely monitor core inflation to make decisions on monetary policy, such as adjusting interest rates.

Example

In a given year, headline inflation might be 3%, but core inflation, which excludes the more volatile food and energy prices, could be 2%, providing a clearer picture of underlying price stability.

Key points

• Core inflation excludes volatile items like food and energy to provide a stable measure of long-term inflation trends.

• Central banks use core inflation to guide monetary policy decisions.

• It helps differentiate between temporary price changes and underlying inflationary pressures.

Quick Answers to Curious Questions

Core inflation provides a clearer measure of underlying inflation by excluding volatile items like food and energy, which are subject to short-term fluctuations.

Central banks use core inflation to assess long-term inflation trends and guide decisions on interest rates and other monetary policies.

Headline inflation includes all consumer prices, while core inflation excludes volatile categories like food and energy to focus on stable price movements.