Core Inflation measures the change in the costs of goods and services not including changes in very volatile sectors like food and energy. Each country determines which sectors are to be included in the Core Inflation measures. For example, food and energy are dependent on supply and demand and can cause short term price changes such as from drought that distort long term inflation changes. Core Inflation is often calculated using the Consumer Price Index CPI and the Personal Consumption Expenditures Index PCE. These are indices that are constructed from monthly changes in the prices of a pre-selected basket of goods and services and removes items that have the largest price changes due to their distorting effect. Economies grow when GDP and wages increase more than the Core Inflation rate.
