Key Points
Core inflation measures the rise in consumer prices after stripping out food and energy, the two categories that swing the most from month to month.
In August 2026, core CPI rose 2.4% from a year earlier, while headline CPI rose 3.4%, according to the Bureau of Labor Statistics. In July 2026, core PCE rose 3.3% and headline PCE rose 3.7%, according to the Bureau of Economic Analysis.
The Federal Reserve’s 2% longer-run goal is defined with the headline PCE price index, but policymakers watch core PCE closely because it often signals where overall inflation is headed.
Food is about 13.7% of the CPI basket and energy about 6.4%, so core CPI covers roughly four-fifths of the index (BLS relative importance, December 2025).
Core inflation is a measure of how fast consumer prices are rising after food and energy are removed from the calculation. Economists and the Federal Reserve use it to see the underlying trend in prices, rather than month-to-month swings driven by gasoline, heating bills or grocery shelves. Headline inflation still matters for household budgets. Core inflation matters for reading the signal underneath the noise.
This explainer covers how core CPI and core PCE are built, what they leave out, why the Fed watches them, how the latest readings compare, and what the numbers do and do not tell you.
What is core inflation?
In the United States, “core” almost always means “excluding food and energy.” The Bureau of Labor Statistics (BLS) publishes a Consumer Price Index for all items less food and energy, commonly called core CPI. The Bureau of Economic Analysis (BEA) publishes a Personal Consumption Expenditures price index excluding food and energy, commonly called core PCE.
The idea is older than the label. BLS introduced an “all items less food” series in 1957, then added “all items less food and energy” in 1977 after the energy shocks of that decade, with history back to 1957. The media, not BLS, popularized the word “core.” Core is not a separate shopping trip. It is the same CPI or PCE basket with two volatile slices removed so the remaining prices can be tracked on their own.
What does core inflation leave out?
For the CPI for All Urban Consumers (CPI-U), BLS’s December 2025 relative importance weights (the shares used through 2026) put food at 13.7% of the basket and energy at 6.4%. Everything else, the core, accounts for 79.9%. Shelter alone is 35.6% of the full CPI, so housing still dominates the core reading.
Leaving them out does not mean the Fed ignores your grocery bill or fill-up. The Federal Reserve Bank of Cleveland notes that policymakers filter volatile pieces to see the longer-run trend, because policy affects inflation with lags. The exclusion is a lens, not a judgment that food and energy prices do not matter to families.
CPI-U component Share of basket (Dec. 2025) In core CPI?
Food 13.7% No
Energy 6.4% No
All items less food and energy (core) 79.9% Yes (by definition)
Shelter (inside core and headline) 35.6% Yes
Medical care (inside core and headline) 8.4% Yes
Source: U.S. Bureau of Labor Statistics, Relative Importance of Components in the Consumer Price Indexes, December 2025 (CPI-U). Shares rounded to one decimal.
Headline vs core: how they differ
Headline inflation is the all-items figure: food, energy and everything else. Core inflation is that figure with food and energy removed. When gasoline or food prices spike, headline usually jumps first. Core often moves more slowly, because rent, medical care, cars, apparel and other services dominate what is left.
Feature Headline inflation Core inflation
What it includes All items in the CPI or PCE basket Same basket, minus food and energy
Main publishers BLS (CPI), BEA (PCE) BLS (core CPI), BEA (core PCE)
Typical use Cost of living headlines; Fed’s formal 2% goal (PCE) Underlying trend; Fed forecasts and policy debates
Volatility Higher, especially when oil or food swings Usually smoother month to month
What households feel Closer to the full bill at the pump and store Closer to rents, services and many goods
The latest official readings show the gap clearly. BLS reported that the CPI-U rose 3.4% over the 12 months ending in August 2026, while the index for all items less food and energy rose 2.4%. BEA reported that the PCE price index rose 3.7% over the 12 months ending in July 2026, while the index excluding food and energy rose 3.3%. August PCE figures are due in BEA’s September 30, 2026 release.
Measure Latest month Headline (12-month) Core (12-month) Source
CPI-U August 2026 3.4% 2.4% BLS (released Sept. 11, 2026)
PCE price index July 2026 3.7% 3.3% BEA (released Aug. 26, 2026)
CPI figures are the not-seasonally-adjusted 12-month changes reported by BLS. PCE figures are from BEA’s Personal Income and Outlays release. The two agencies use different baskets and formulas, so the levels are not interchangeable. For a fuller comparison, see LiveNewsWorld’s guide to CPI vs PCE.
Why the Federal Reserve watches core inflation
Interest rate decisions work with a delay. By the time a rate change fully works through hiring, borrowing and spending, a temporary surge in gasoline or produce may already have faded. If the Fed reacted to every food or energy blip, it could tighten or ease for a problem that was already reversing.
That is why core sits at the center of policy debate even though the formal target is broader. In its Statement on Longer-Run Goals and Monetary Policy Strategy, the Federal Open Market Committee (FOMC) judges that inflation of 2% over the longer run, as measured by the annual change in the PCE price index, is most consistent with its mandate. The Board’s FAQ on the 2% goal defines that goal with headline PCE. In practice, FOMC participants also publish core PCE projections in the quarterly Summary of Economic Projections. The goal is written in headline PCE; core PCE helps judge whether inflation is settling near that goal for the right reasons. For institutional background, see LiveNewsWorld’s explainer on what the U.S. Federal Reserve does and why it matters.
Core can also stay sticky when headline cools. If energy prices fall while rents and services keep climbing, headline can look better than the trend the Fed cares about. The reverse happens too: a gasoline spike can push headline above core even when underlying pressures are easing.
Core CPI vs core PCE
Core CPI and core PCE exclude the same two categories, food and energy, but they are not the same number. They inherit all the usual differences between CPI and PCE: whose spending is covered, how categories are weighted, and how the formula handles substitution when prices change.
Housing weighs much more in the CPI than in PCE, while health care weighs more in PCE. That is one reason core CPI and core PCE can diverge even in the same month. In July 2026, the latest month with both available, BLS’s core CPI was 2.5% year over year, while BEA’s core PCE was 3.3%. In August 2026, core CPI eased to 2.4%; August core PCE had not yet been published as of this writing.
Neither series is “wrong.” They answer slightly different questions. Markets and Fed speakers usually emphasize core PCE when discussing the policy target. Households and Social Security formulas lean on CPI versions. For the full CPI vs PCE comparison, including weights and formulas, see the CPI vs PCE explainer.
How core inflation has behaved over time
Over long stretches, headline and core move together. When they separate, headline usually snaps back toward core, which is part of why policymakers treat core as a forward-looking signal. The chart below shows seasonally adjusted 12-month changes for headline and core CPI and PCE since 2000, with the Fed’s 2% goal marked for reference.
What core inflation does not tell you
Core is a tool, not the whole story. It does not measure a full household budget, because food and energy are real costs, and it does not guarantee that excluded prices will reverse. “Core” is also only one way to strip noise: trimmed-mean or median measures from regional Federal Reserve Banks drop whichever categories moved most in a given month. Inside the remaining basket, a jump in shelter or a slide in used cars can dominate core even when food and energy are quiet. Reading core well means checking which categories are driving the change.
Common misconceptions about core inflation
“The Fed does not care about food and gas.” False. Officials track headline prices and household inflation perceptions closely. Core is used to filter temporary swings when setting a path for rates that takes months to work.
“Core is always lower than headline.” Not always. When food and energy prices fall, headline can run below core. That pattern showed up in past disinflation periods and can reappear whenever commodity prices drop sharply.
“Core CPI and core PCE are interchangeable.” They are not. Same exclusion, different indexes. Compare levels only with that caveat, or stick to one series when tracking a trend.
“If core is near 2%, the cost of living feels fine.” Not necessarily. A 2% core reading can coexist with painful grocery or rent bills. Core answers a policy question about underlying momentum. It is not a comfort score for your weekly shopping.
Video: how the CPI measures inflation
The Wall Street Journal’s short explainer below walks through how the Consumer Price Index is built. Understanding that process is the best first step toward reading core CPI, which is the same index with food and energy removed.
Video: “How the Consumer-Price Index Measures Inflation,” The Wall Street Journal. Embedded via YouTube; preview recommended before relying on the clip in context.
Frequently asked questions
Is core inflation the Fed’s official target?
No. The FOMC’s longer-run 2% goal is defined with the annual change in the headline PCE price index. Policymakers still lean heavily on core PCE (and related measures) when judging whether inflation is sustainably near that goal.
Why exclude food and energy instead of other volatile items?
Food and energy have a long history of large, temporary swings tied to supply shocks. Other categories can be volatile too, which is why trimmed-mean and median measures exist. The food-and-energy exclusion remains the standard “core” definition in U.S. releases because it is simple, familiar and available in both CPI and PCE.
Which should I watch, core CPI or core PCE?
For Fed policy, start with core PCE. For Social Security and many contracts, CPI versions matter more. Watching both, plus headline, gives the fullest picture. When they disagree, check housing and health care weights before assuming one series is broken.
Does a lower core reading mean prices are falling?
Usually no. A 2.4% core CPI reading means prices in the core basket are still rising, just more slowly than at a higher rate. Falling prices would show up as a negative 12-month change, which is uncommon for core measures outside deep downturns.
The bottom line
Core inflation strips food and energy from CPI or PCE so the underlying price trend is easier to see. The Federal Reserve defines its 2% goal with headline PCE, yet it watches core closely because rate policy cannot chase every gasoline or grocery swing. Latest official data put August 2026 core CPI at 2.4% (headline 3.4%) and July 2026 core PCE at 3.3% (headline 3.7%). Use core to read the trend, headline to remember what households pay, and when the two diverge, ask which categories are doing the work.
