Not being an economist, I had only a vague idea of the difference so I looked it up. Knowing the difference it’s important because some people mix up the two and many people think that the prices they see at the grocery store and gas pump are not reflected in the CPI and hence things like the SS COLA – they are. Look at this past blog post.
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.
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 costs 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.
Source: Investopedia
The Preferred Measure of Core Inflation
The Federal Reserve prefers to use the PCE index rather than CPI since PCE tends to provide inflation trends that are less affected by short-term price changes.1 Also, the Bureau of Economic Analysis (BEA), a division of the Department of Commerce, calculates the change in prices by using existing gross domestic product (GDP) data, which helps to determine an overall trend in prices. The GDP figure is a measure of the production of all goods and services in the U.S. The BEA also adds in the monthly retail survey data and compares them with the consumer prices provided by the CPI. These additions remove data irregularities and provide detailed long-term trends.6
The Importance of Core Inflation
It is crucial to measure core inflation because it reflects the relationship between the price of goods and services and the level of consumer income. If prices for goods and services increase over time but consumer income doesn’t change, consumers will have less purchasing power. Inflation causes the value of money or income to decrease in comparison to the prices of basic goods and services.
However, if consumer income rises, called wage growth, while the prices of goods and services remain unchanged, consumers will have more purchasing power. Also, as investment portfolios and home prices rise, asset inflation occurs, which can provide additional money for consumers to spend.
Source: Investopedia
QUINNSCOMMENTARY 
The last sentence in the Investopedia explanation puzzled me. How does an increase in my home value give me more money to spend?
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Yes, it’s good to know how they measure CPI but it simply is a fact that there is too much money chasing too few goods.
In 2008 the Fed began flooding the country with $ and the balance sheet grew from $870 billion to today’s $7.4 trillion. A 747% increase–from 5% of the economy in 2008 to today at 25%+.
What the Fed has done is not allow banks to maker loans by forcing them to have large reserves–larger the reserves the fewer loans that can be made. The Fed sets the rates wherever it wants them.
Politicians want low rates (bad for savers) to satisfy the car loan folks–mortgages–and the folks who like deficits.
Since 2008 interest rates have run lower than inflation 80% of the time. With all the $ in the system you had to bet on inflation.
First Trust–Outlook this past Monday capsulized this and you can google and read.
Remember there is a reason gold has moved much higher since 2000–that land is more expensive–art work is gathering a princely sum–you can’t print gold/silver/copper/works by Picasso/ and farm land.
Just remember France demanding reparations from Germany in the decade of the 20ies and the Germans gave them worthless marks–freshly minted. Zimbabwe and Argentina today are dealing with that calamity.
So no matter how you measure it–CPI Core or whatever the currency is being debased. Sort of like those fixed annuities with a fixed $ amount for your lifetime–what will your money buy if you live 30 years more?
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