Core and headline inflation explained

Synopsis

In December, inflation in the eurozone turns negative, with prices falling by 0.2% on a yearly basis. This decline is reflected in the Harmonized index of consumer prices, primarily driven by a sharp fall in energy costs. Core inflation, which excludes volatile items like energy and food, slightly increases to 0.8%. The European Central Bank's target for inflation is just below 2%, focusing on headline inflation. However, central bankers also monitor core inflation closely, as it provides insight into consumer expectations. Ignoring core inflation can be risky, as it may overlook shifts in consumer sentiment that could lead to prolonged deflation in the economy.