Core vs headline inflation
Headline inflation counts everything; core strips food and energy — the two most volatile components. The exclusion isn't about what households pay; it's about what the data can reveal: energy spikes are supply shocks that pass, while core captures the sticky, demand-driven inflation that policy has to fight.
The 1970s lesson
The Fed's great inflation mistake was reacting to headline: oil shocks pushed CPI up, the Fed eased when it fell, and underlying inflation kept building through three successive waves. Core inflation was the measure that showed the problem was never solved — a lesson that shaped Volcker's refusal to stop at the first dip.
Signal implications
Core determines the rate path — and the rate path determines the yield curve, housing, and credit conditions that drive the composite score. When headline and core diverge (like 2022: CPI 9%, core PCE ~5%), the recession signal ambiguity reflects genuine uncertainty about how far the Fed must go.