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Core Inflation


The rate of inflation that does not take into consideration certain items that are characterized by sudden or shortlived price movements (i.e., volatile items) such as food and energy products (which reflect the so-called transitory price changes).

Core inflation reflects the change in the costs of goods and services, mainly excluding the food and energy products. As such, this measure of inflation downplays the effects of volatile items on the measured rate, and hence it provides a better indicator of general long-term trends in the price level as compared to the headline inflation.

From a monetary authority perspective, price fluctuations take two main forms: 1) fluctuations in prices to which the monetary authority does intend to show any reaction simply because such fluctuations are likely to be quickly reversed even without intervention. Such fluctuations are also induced by seasonality and the timing of certain price changes, among others, may create noise, distorting published price indexes. Core inflation measures are designed to curb this noise. 2) other short-term fluctuations (that are by nature idiosyncratic at the level of an economy) represent price shocks that result from events beyond the control of the monetary authority. Examples include changes in supply, such as a shortages due to natural occurrences, leading to large changes in the relative price of a specific commodities or goods, and on the other hand, changes in demand for a particular good due to change in taste, also impacting its relative price, or other policy factors such as changes in indirect taxes.

Core inflation is also known as a long-run inflation.



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