01/04/2025
Supercore inflation helps us understand how prices move without background noise.
If we imagine the economy as a large, moving city, we could say that inflation acts as a key signal for understanding its internal rhythm. However, just as not all sounds in a city have the same meaning, within inflation there are noises that can confuse more than clarify. For example, energy or food prices rise and fall due to unpredictable factors, such as weather or geopolitical conflicts, and don't always reflect the true underlying dynamics.
To reduce this noise, central banks use core inflation, which excludes these volatile components, but even this measure can prove insufficient. Within the services sector, there is a group particularly sensitive to the labor market and wage trends: services excluding housing. This is where supercore inflation comes in, a metric that allows us to hear the stable, everyday sounds of the economy: the price of a haircut, a repair, a taxi ride, or personal services.
These prices don't depend on external factors, but rather on the internal pulse of economic activity and the tension in the labor market. Therefore, when supercore inflation rises, it usually indicates that the economy is operating at a high pace and that wage pressures are generating more persistent price increases.
For central banks, this signal is especially valuable. It helps them distinguish between a one-off inflationary spike and a deeper trend that could last longer than desired. High supercore inflation usually justifies maintaining or even tightening monetary policy; in contrast, consistent moderation can pave the way for interest rate cuts.
But… what is the real difference between these metrics?
CPI, core CPI and supercore CPI in the US
In general, supercore inflation is much more stable than the rest; it rises and falls less, and when it does, it does so more slowly. During this period, there are two particularly relevant moments to see the difference between the two: 2015 and 2024.
During these periods, factors such as China's economic weakness in 2015, or housing prices that grew less than other items in 2024, have led supercore inflation to show real economic strength in the country that other metrics did not reflect as clearly.
