How to Calculate Core Inflation
Core inflation equals the percent change in a price index that leaves out food and energy, computed exactly like headline inflation but on the stripped-down index.
The Core Inflation formula
Calculator
Enter the core and all-items index at both dates to get core inflation, headline inflation and the gap between them.
The price index with food and energy already removed, latest reading.
Same core index twelve months back, which is what makes the comparison seasonal-free.
The headline index including food and energy, latest reading.
Headline index twelve months back.
Prices outside food and energy rose 3% over the year, which is the trend policy tracks.
- Headline inflation rate
- 5%
- Gap, headline minus core
- 2%
- Change in the core index
- 3.75
- Which is running hotter
- Headline above core
The all-items index rose 5%, the figure a household budget actually meets.
Food and energy account for 2% of the headline rate, and that contribution reverses when those prices fall back.
The core index moved 3.75 points, which becomes a percent only after dividing by the starting level.
Comparing the two says whether the volatile components are pushing measured inflation up or holding it down.
How to calculate Core Inflation, step by step
- 1Pick the core index. Use the version of the price index published with food and energy removed, not the all-items index.
- 2Take the change over a full year. Subtract the index a year earlier from the index now, since a twelve-month span keeps seasonal patterns from distorting the answer.
- 3Divide by the earlier index. Dividing the point change by the starting value turns it into a proportion, and multiplying by 100 states it as a percent.
- 4Compute headline the same way. Run the identical steps on the all-items index so the two rates are comparable.
- 5Read the gap. Headline minus core is the part of measured inflation coming from food and energy, and it can point either way.
Worked example: Core Inflation
A core index reads 128.75 now against 125.0 a year earlier, so core inflation = (128.75 − 125.0) ÷ 125.0 × 100 = 3.75 ÷ 125.0 × 100 = 3%. The all-items index moved from 126.0 to 132.3, giving headline inflation of 6.3 ÷ 126.0 × 100 = 5%. Headline is running 2 percentage points above core, so food and energy are adding those 2 points on top of the underlying trend.
Core Inflation questions
Why strip out food and energy?
Those two swing hard on weather and oil supply and then reverse, so leaving them in makes the monthly rate jump around and hides the trend that policy responds to.
Is core inflation the rate households actually pay?
No. Households buy groceries and fuel, so headline inflation is closer to what a budget feels. Core is a tool for reading the trend, not a cost-of-living measure.
Can core run above headline?
Yes. When energy prices fall, headline drops below core and the gap turns negative, and it stays there until that price decline drops out of the yearly comparison.
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