“Core” inflation is regular inflation with food and energy stripped out. Many believe food and energy prices have historically been misleadingly volatile, so removing them provides a better long-term measure of inflation. Investopedia says:
- Core inflation is an inflationary measure that leaves out energy and food, focusing only on items that have fairly predictable price movements.
- The measure is useful because it shows how price changes affect your spending power over time.
- The Federal Reserve prefers using the PCE index over the CPI to track core inflation because it gives a steadier picture of long-term price trends.
Wikipedia says, “Core inflation is a type of inflation measure which seeks to represent the underlying long-run trend of aggregate price levels in the economy.
The problem is that the explanations are false.
“Core” inflation lumps food and energy together as though the evidence were similar for both. It isn’t. And the word “core” misleadingly implies that it is real or basic. It is not.
Energy prices really are extraordinarily volatile. But food prices, especially in recent decades, are not particularly unusual compared with many things that remain inside “core.”
A July 2026 St. Louis Fed analysis found that since 2001, food inflation’s variance was about 3.1 times headline PCE inflation. Compare that with durable goods at 3.0, clothing at 2.8, transportation at 4.0, and financial services at 4.6—all of which remain in core PCE.
Energy goods, by contrast, were 208.6 times headline variance.
A Fed paper notes that some excluded food categories aren’t especially volatile while some included categories—airfares, apparel, tobacco—are highly volatile. And a Kansas City Fed analysis says food-at-home inflation has become no more volatile than many nondurable goods that remain in core inflation.
So why exclude food and energy?
The practice came from the 1970s, when commodity prices were especially volatile. According to a Fed analysis, the original decision wasn’t mainly about statistical reasoning—it was shaped by that era’s experience and offered a straightforward way to smooth out volatility.
In truth, it’s not really “core.” It doesn’t capture “real” inflation by simply removing anomalies, despite what the term might suggest.
So, why has the Fed adopted it?
Here is the real reason for the Fed’s preference for “core.” A Fed paper quotes former Vice Chair Alan Blinder arguing that
the real reason food and energy were removed was that their prices were largely beyond the central bank’s control.
WHAT!!? They only measure what they believe they can control?? The plan was: food and energy inflation largely results from things the Fed can’t fix with interest rates—oil shortages, crop failures, wars, weather, etc.—so just pretend they don’t exist. Exclude them and study the portion of inflation that monetary policy supposedly can influence — and give it the name, “core.”
They’re defining “core inflation” partly around the capabilities of the institution assigned to fight inflation, rather than around the cause of inflation itself. The Fed throws away some of the prices it has the least power to control—which may also be some of the prices most important in causing the inflation.
And then it raises interest rates.
Telling the Fed to control inflation is like going to an orthopedic surgeon when you have measles.
This bit of nuttiness comes on top of the fact that raising interest rates increases all business costs, which is a strange way to fight inflation.
Inflation is caused by shortages of key goods and services — mostly food and energy — so to fight inflation the federal government needs to reduce those shortages without recessing the economy.
That is, the government needs to help increase the production, acquisition and distribution of the scarce items. Raising interest rates might reduce demand, but when it does, that is recessive. Causing a recession to cure inflation surely is the daffiest economics imaginable.
But hey, interest rates are the Fed’s only tool. And to a hammer, every problem is a nail.
SUMMARY
The Fed’s only tool: interest rates. What can interest rates influence most readily? Demand. What can’t they readily produce? Oil, food, houses, doctors, semiconductors. What gets removed from the famous “core” measure? Two enormously important categories whose prices often reflect supply conditions.
Then Congress hears “core inflation remains elevated” and waits for the Fed to fix it, when it is Congress that has the power and the responsibility to reduce shortages.
The Fed fighting shortage-caused inflation with interest rates is like going to an orthopedic surgeon when you have measles. The orthopedic surgeon may be an excellent doctor. His instruments may work perfectly. He’s simply the wrong specialist for the disease.
And then imagine the orthopedist saying: “I can’t do much about the rash or fever, so I’ll exclude those from my measurements. But since your bones are fine, your core measles is OK.”
And that is how the world’s most powerful nation is led.
Rodger Malcolm Mitchell
#Monetary Sovereignty - Mitchell 