Inflation has been a hot topic in recent years, with concerns rising over rising prices and the impact on the economy. While inflation has taken a bit of a dip in the last few months, we’re not out of the woods yet. 

We know where inflation will head because of an index you may have heard of called the CPI. But what are all these terms associated with CPI, and what do they have to do with the economy? 

While the headline CPI is often the most widely reported number, it is essential to understand the different CPI cores to gain a more comprehensive understanding of inflation in the US. 

In this article, we will explore the three different CPI cores - core, super core, and sticky core - and their significance in measuring inflation so that you can get one step ahead of the game. 

The Headline CPI

First up, let’s break down what the headline CPI is. As previously stated, it’s the most widely reported number and measures the monthly price change of all items in the US basket. 

This includes food, energy, and other goods and services (all things we’ve seen to be pretty volatile). The headline CPI is often used to gauge inflation and is closely monitored by the Federal Reserve and policymakers.

The Core CPI

The core CPI is a measure of inflation that strips out food and energy prices, which are deemed volatile and can fluctuate due to factors outside of the control of the economy. 

The core CPI is meant to provide a more stable measurement of inflation that is less affected by short-term price changes. 

The Super Core CPI

The super core CPI goes even further than the core and strips out even more items from the basket of goods and services used to measure inflation. 

This index is not yet published by the Bureau of Labor Statistics but is used by some economists and analysts to attempt to get a more accurate measurement of inflation. 

The Sticky Core CPI

The sticky core CPI was created by the Atlanta Fed and measures items that do not frequently change prices or, in other words, “are sticky.” 

This includes items like alcohol, baby diapers, and rent, which are less affected by short-term price changes. The sticky core CPI is believed by some economists to measure future inflation more than other CPI measures.

What the CPI Cores Tell Us

The recent drop in the headline CPI has led to discussions about the different CPI cores and what they tell us about inflation in the US. While the headline CPI decreased, the core and sticky core CPIs remained unchanged or increased slightly. 

What does this mean? It means that we can’t be “headline consumers.” This is primarily because energy costs have been the main driver of the headline CPI decrease.

While the core CPI is seen as a more stable measure of inflation providing long-term inflation trends, the sticky core CPI is believed by some economists to be a more accurate predictor of future inflation due to its focus on items that do not frequently change prices.

Understanding the different CPI cores is crucial for accurately measuring inflation and predicting future trends. While the headline CPI is the most widely reported number, it can be affected by short-term price changes that may not reflect long-term inflation trends. 

So by considering the different CPI cores, economists and policymakers can gain a more comprehensive understanding of inflation and make more informed decisions.

Bottom Line

Inflation is a complex issue that requires a nuanced understanding of different measures and factors. The CPI cores - core, super core, and sticky core - provide valuable insights into inflation trends and help investors make more informed decisions. 

While the recent drop in the headline CPI is seen as a win, it may be short-lived, and it is vital to consider the different CPI cores to gain a more accurate picture of inflation in the US.

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