Core inflation

Core inflationTermInflation×التضخّمA general rise in prices over time, so one riyal today buys less than it did a year ago.Open the term is the general rise in prices with food and fuel removed from the calculation. It is measured the same way as headline inflation, but from a different basket of goods and services.

Core inflation includes everything else: housing, transport, clothing, utilities, healthcare, and services. For example, if headline inflation is 8% but food and fuel prices jumped 15%, core inflation might be 5%, showing that prices for other goods and services are rising more slowly.

Food and fuel prices move fast and respond to factors outside monetary control: poor harvests, global crises, policyTermCar insurance×تأمين السياراتA contract that covers the cost of damage to your vehicle or injury to others, depending on the type of policy you hold.Open the term decisions. If you include them in inflation measurement, you mix genuine monetary pressure with temporary shocks. A central bankTermCentral bank×البنك المركزيThe government's bank, which controls the money supply, sets interest rates, and oversees all other banks in the country.Open the term wants to see the underlying pressure alone.

Central banks set monetary policyTermMonetary policy×السياسة النقديةThe decisions a central bank makes about interest rates and the money supply to manage inflation, employment, and economic stability.Open the term based on core inflation, not the inflation you experience. You experience headline inflation, which includes food and fuel.

In a region withdrawing subsidiesTermSubsidy×الدعمMoney or price support the state provides to keep the cost of essential goods or services below what the market would charge.Open the term from food and fuel, that gap is the entire story. When fuel prices rise or bread subsidies end, headline inflation jumps while core inflation stays flat. The central bank sees stability and does not raise rates. You see prices climbing and purchasing power falling. Same word, opposite reality.

The two measures move together in normal times. They diverge sharply when policy shifts the cost of food or fuel, which is precisely when the gap matters most to a household budget.

• Core inflation is a tool for measuring monetary pressure, not a measure of your cost of living. Do not expect it to match what you feel in the market.
• When headline inflation rises because of a food or fuel shock, the central bank may not move because it treats the shock as temporary.
• The gap between core and headline widens during crises and policy adjustments, and narrows when prices stabilize.
• In countries gradually removing subsidies, interest ratesTermInterest rate×سعر الفائدةThe percentage of principal charged by a lender or paid by a saver, usually stated as an annual rate.Open the term may stay low even after you experience a real rise in costs.