Core CPI explained: what it is and why it matters

Core CPI (Core Consumer Price Index) is a measure of inflation in the US that excludes food and energy prices, which can fluctuate sharply. By filtering out these swings, it becomes easier to get a clearer picture of underlying trends, although there are still some limitations. 

What is the history of Core CPI?

The idea took shape in the 1970s, when food and energy shocks sent prices soaring. In 1975, economist Robert Gordon argued that it was important to separate lasting inflation from temporary price spikes caused by external shocks.

In 1978, the US Bureau of Labor Statistics (BLS) introduced a CPI measure excluding food and energy, known as "All Items Excluding Food and Energy." 

How is Core CPI calculated?

The BLS calculates Core CPI in two stages. First, it tracks price changes for a sample of goods and services across the US, from rent in different cities to medical services in specific regions.

Next, it combines these price changes into a single index, excluding food and energy. Each category is weighted by its share of consumer spending, so price changes in categories where Americans spend more have a greater impact on the final number.

The resulting index shows the weighted average change in prices for the categories included in Core CPI, reported as monthly (m/m) and annual (y/y) percentage changes.

How does Core CPI differ from headline CPI?

Headline CPI includes every category in the consumer basket, with food and energy accounting for roughly one-fifth of the CPI basket, while Core CPI excludes food and energy. As a result, a jump in oil or gas prices can push Headline CPI above Core CPI. When energy prices fall, the opposite can happen.

Both measures matter, but while Headline CPI shows how prices are changing overall, Core CPI helps reveal underlying inflation trends. 

How does Core CPI differ from Core PCE?

Both Core CPI and Core PCE (Core Personal Consumption Expenditures Price Index) exclude food and energy to track underlying inflation, but differ in spending coverage and how they weight goods and services.

• Core CPI is published by the Bureau of Labor Statistics (BLS). It measures prices paid by urban consumers and gives housing and rent a relatively large weight.
• Core PCE is published by the Bureau of Economic Analysis (BEA). It covers a broader range of consumer spending, including employer- and government-paid healthcare.

The two measures also treat food differently. Core CPI excludes all food, while Core PCE excludes only food purchased for home consumption and includes restaurant meals.

These differences can lead to different readings of inflation. For example, when housing costs rise rapidly, Core CPI may increase more than Core PCE because housing carries a greater weight in CPI.

Neither measure tells the whole story, so economists look at both alongside headline inflation and other indicators of underlying price pressures.

Is core inflation calculated the same way around the world?

No, countries don’t all exclude the same items or calculate core inflation the same way, so the figures aren’t directly comparable.

• United States: Excludes food and energy.
• Euro area: Excludes energy, food, alcohol, and tobacco.
• Japan: Core CPI excludes fresh food but includes energy, while Core-core CPI excludes both fresh food and energy.
• Canada: The Bank of Canada tracks measures such as CPI-trim and CPI-median, which filter out extreme price changes rather than excluding fixed categories.

Baskets, spending weights, and the treatment of housing costs also vary from country to country.

How to read a Core CPI release?

In the BLS report, Core CPI appears as "All items less food and energy."

To interpret the release, compare the actual figures with the previous readings and market forecasts. Focus on three things:

• Monthly change (m/m): Shows how much prices have moved over the past month. 
• Annual change (y/y): Compares prices with the same month a year ago.

Forecast vs. actual: The difference between the expected and actual figures is what markets usually pay attention to.

A higher-than-expected reading can put pressure on markets, while a lower one can support them. Often, the surprise matters more than the actual number. 

Who uses Core CPI and why?

Central banks, including the Federal Reserve, watch the Core CPI to gauge whether inflation is sticking around or starting to cool. If it stays high, they may raise interest rates to slow demand. If it starts falling, they may have more room to cut rates.

Investors, in turn, watch Core CPI for clues about what central banks might do next. Higher-than-expected readings can push bond yields up and stock prices down as markets anticipate higher interest rates. Softer readings can have the opposite effect, depending on what investors were expecting and how the wider economy is performing.

What are the limitations of Core CPI?

Core CPI can miss price increases that directly hit household budgets, especially when food and energy costs remain high for extended periods. It may also take time to capture broader inflationary pressures as temporary shocks begin to spread to other goods and services.

For this reason, economists look at Core CPI alongside other indicators:

• Headline inflation: Tracks price changes across the entire consumer basket, showing how inflation affects household budgets.
• Services excluding housing: Helps gauge domestic price pressures, which tend to be more persistent and are often linked to wages and other business costs.
• Inflation expectations: Show whether households and businesses expect inflation to stay high.
• Economic growth and output relative to potential: Help show whether demand is pushing the economy beyond its capacity.

Together, these indicators help assess the broader inflation picture. For example, falling headline inflation alongside persistently high core and services inflation may signal that underlying price pressures remain strong.

Exploring Core CPI with TradingView

TradingView makes it easier to follow Core CPI and see how markets react to new inflation data.

• Economic Calendar: Find upcoming CPI releases, check what markets expect, and compare forecasts with actual figures. You can also filter events by country and importance.
• Supercharts: Search for the US Core CPI indicator with "USCCPI," and plot it on a chart. Choose a multi-year time range, since the data updates monthly, and compare it with the US 10-year Treasury yield or the US dollar index.
• Compare symbols: Plot headline CPI and Core CPI together to see how their movements differ.

Understanding the concept of Core CPI

Core CPI (Core Consumer Price Index) is a monthly US inflation measure published by the Bureau of Labor Statistics under “All items less food and energy” in its CPI report. Since these prices can change sharply, leaving them out gives a clearer view of underlying inflation trends.

However, because it leaves out food and energy costs that households feel directly, Core CPI may not fully reflect inflationary pressures, so economists read it alongside headline CPI, Core PCE, and other indicators.