Headline Inflation
Reviewed by
MICHAEL J BOYLEUpdated Jan 26, 2021
What Is Headline Inflation?
Headline inflation is the raw inflation figure reported through the Consumer Price Index (CPI) that is released monthly by the Bureau of Labor Statistics. The CPI calculates the cost to purchase a fixed basket of goods, as a way of determining how much inflation is occurring in the broad economy. The CPI uses a base year and indexes the current year's prices according to the base year's values.
Play video on original page
What Is Inflation?
Headline Inflation Explained
As it includes all aspects within an economy that experience inflation, headline inflation is not adjusted to remove highly volatile figures, including those that can shift regardless of economic conditions. Headline inflation is often closely related to shifts in the cost of living, which provides useful information to consumers within the marketplace.
The headline figure is not adjusted for seasonality or for the often-volatile elements of food and energy prices, which are removed in the core Consumer Price Index (CPI). Headline inflation is usually quoted on an annualized basis, meaning that a monthly headline figure of 4% inflation equates to a monthly rate that, if repeated for 12 months, would create 4% inflation for the year. Comparisons of headline inflation are typically made on a year-over-year basis, also known as top-line inflation.
Negatives of Rising Inflation
Inflation is a threat to long-term investors because it erodes the value of future dollars, can stifle economic growth, and can cause a rise in prevailing interest rates. While headline inflation tends to get the most attention in the media, core inflation is often considered the more valuable metric to follow. Both headline and core results are followed closely by investors, and are also used by economists and central banking figures to set economic growth forecasts and monetary policy.
Core Inflation
Core inflation removes the CPI components that can exhibit large amounts of volatility from month to month, which can cause unwanted distortion to the headline figure. The most commonly removed factors are those relating to the cost of food and energy. Food prices can be affected by factors outside of those attributed to the economy, such as environmental shifts that cause issues in the growth of crops. Energy costs, such as oil production, can be affected by forces outside of traditional supply and demand, such as political dissent.
From 1957 until 2018, the average core inflation rate in the United States was listed as 3.64%. The all-time high was 13.60%, which occurred in June of 1980. The lowest rate was recorded in May of 1957 with an inflation rate of 0%. As of 2018, the Federal Reserve’s goal rate for core inflation was 2%.1
Related Terms
Economics is a branch of social science focused on the production, distribution, and consumption of goods and services. more
Personal Consumption Expenditures (PCE)
Personal consumption expenditures (PCEs) are imputed household expenditures for a defined period of time used as the basis for the PCE Price Index. more
Price Inflation Definition
Price inflation is an increase in the price of a collection of goods and services over a certain time period. more
Inflation is a decrease in the purchasing power of money, reflected in a general increase in the prices of goods and services in an economy. more
Consumer Price Index (CPI) Definition
The Consumer Price Index measures the average change in prices over time that consumers pay for a basket of goods and services. more
What Is a Seasonal Adjustment?
A seasonal adjustment is a statistical technique designed to even out periodic swings in statistics or movements in supply and demand related to changing seasons. more
Related Articles
How CPI Affects the Dollar Against Other Currencies
Why Is the Consumer Price Index Controversial?
The Importance of Inflation And GDP
The Top 10 Economic Indicators in the U.K.
Is the Consumer Price Index (CPI) the best measure of inflation?
What You Should Know About Inflation
About Us
Terms of Use
Editorial Policy
Privacy Policy
Contact Us
California Privacy Notice
Investopedia is part of the Dotdash publishing family.