Core Inflation represents any changes in the cost of goods, services, etc. Such items as food and energy are the exception. These sectors are excluded from the list because of their volatile pricing. Though, they can be impacted by different factors but are not tied with inflation.
To measure the inflation Consumer Price Index is utilized. Such products as food and energy are the main components of consumption basket, and its price fluctuates a lot. The price can be very high, but such items always stay in demand, that is why they are excluded from the rate.
The specialists and economists are forced to remove such indicator from the equation to know better pricing trends for goods and services. Thus, they can predict the inflation flows for a further period.
The calculation of core inflation is reasonable, as it shows the correlation between goods value and the value of consumers’ income. There are two most probable ways of how the inflation displays. The first one – when the goods and services pricing increases, but the consumers’ income stays low. Thus, the money is depreciated, and consumers lose the buying power.
The second way is the opposite. The consumers’ income grows, the price of the items does not increase. Thus, consumers have high buying power.