- Core inflation is a concept that strips away ‘volatile factors’ from the usual Consumer Price Index.
Core inflation tends to be less volatile than the headline rate. E.g. a rapid rise in oil or food prices can push up CPI, but core inflation excludes this.
- Core inflation could involve – CPI – (energy, food, alcohol and tobacco prices.)
Core inflation would also exclude mortgage interest payments which are included in the RPI (Retail Price Index)
Core inflation will be influenced by the underlying inflationary pressures; it is often closely linked to wage inflation. For example, in 2011, we had the experience of UK RPI inflation rising to over 5%, but this was mainly caused by temporary factors (energy, food, one-off tax rises, and impact of devaluation). Underlying inflationary pressure was low.
This graph shows core inflation in the Eurozone compared to the ‘headline’ HICP (Harmonised consumer price index)
Useful addition for: ECB v Bank of England post