New research from the Federal Reserve Bank of St. Louis suggests the Fed could get a better read on underlying inflation by excluding only gasoline and other energy goods from its inflation measure, rather than stripping out both food and energy entirely. The study, by economist Fernando M. Martin, finds that the standard core gauge removes about 12% of consumer spending, while an energy-only exclusion keeps roughly 97% of spending in the index.
Why exclude only energy?
Martin's analysis shows that gasoline and other energy goods are dramatically more volatile than any other price category, largely because they track global oil prices so closely. Food prices, by contrast, are not particularly volatile and tend to move in line with overall inflation, similar to categories like clothing or transportation that the Fed does not exclude. Household utility prices such as electricity and gas sit in between, more volatile than food but far calmer than gasoline.
A more stable gauge
Based on this, Martin proposes a measure that excludes only energy goods. This approach keeps about 97% of consumer spending in the index, compared with roughly 88% under the standard core measure, while still smoothing out the sharp, short-lived swings driven by oil markets. The alternative tracks overall inflation trends closely and would have captured the post-pandemic stall in inflation that was partly masked in the headline figure by swinging oil prices.
Policy implications
The research lands as new Fed Chair Kevin Warsh has flagged inflation measurement as a priority, having set up task forces on data and inflation frameworks. Martin notes that 2026's jump in headline inflation was driven largely by oil prices tied to the conflict in Iran, but a more moderate rise showing up even once energy goods are excluded suggests other inflationary pressures may persist even as oil markets calm down. Markets watching for clues on the Fed's rate path may pay closer attention to how officials talk about "underlying" inflation in coming meetings.