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Will Core Inflation Spike Alongside Headline Inflation?

The Macro Institute's Weekly Economic Primer

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The Macro Institute
April 27, 2026

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Don’t have time to watch the whole video? Here’s 5 Key Takeaways:

🔹Relationship Between Core & Headline Has Changed: Back in the 1970s, Core CPI tended to trend alongside spikes in Headline CPI during oil price shocks. This was true during the Arab Oil Embargo and the Iranian Revolution. However, during more recent oil price shocks this has not held true. While Headline CPI spikes, Core CPI stays relatively subdued.

🔹Income Effect Weighs On Demand & Core Inflation: Energy & Food are necessities with inelastic demand, so when their prices spike, households don't cut back much. Instead, they cut discretionary spending. That reduced demand puts downward pressure on those prices, so core inflation remains contained as headline soars.

🔹The Wage-Price Spiral Is Structurally Different: The reduction in the union membership rate from the 1970s to today has greatly altered the dynamics between price increases and wage increases. COLAs, which are common in union contracts, are automatic wage increases based on changes to CPI.

🔹The World Is Far More Globalized Today: U.S. companies have a lot more competition internationally than they did in the 1970s. Today, any price increases from U.S. companies could lead to consumers looking across the global for an alternative.

🔹The U.S. Economy Is Less Dependent On Energy: The energy intensity of the U.S. economy today is less than half it was during the 1970s. It takes around four BTUs of energy today to produce one dollar of real GDP. That number was nearly 12 in 1975.

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The Macro Week Ahead

📆 Last Week’s Data Key Takeaways

🔹 Retail Sales Surged on Gas, But the Signal Is Muddy: March retail sales jumped +1.7% M/M (vs +1.4% forecast), the largest monthly increase since January 2023. But gasoline station receipts surged a record +15.5%, massively inflating the headline, as retail sales data is not adjusted for price changes. Excluding gas stations, sales rose just +0.6%, a touch slower than February’s +0.7%.

🔹 Pending Sales Surprised To The Upside Despite Rising Rates: March pending home sales rose +1.5% M/M (vs +0.1% forecast), the second consecutive monthly increase, pushing the index to 73.7. The Northeast (+4.4%) and South (+3.8%) led, while the Midwest (-1.3%) and West (-2.6%) declined.

🔹S&P Flash PMIs Rebounded, KC Fed Held: The S&P Manufacturing PMI surged to 54.0 in April (vs 52.5 forecast), the highest since May 2022. Services recovered to 51.3 from 49.8 but remained the second-weakest reading in a year. The KC Fed eased one point to 10 in April (from 11), still expansionary, with future expectations rising to 18, the highest since July 2022.

🔹 Michigan Hit An All-Time Low: Final April Michigan Sentiment came in at 49.8, revised up from the preliminary 47.6, but still the weakest reading on record. It was even below the June 2022 trough during peak Biden-era inflation. Declines spanned every demographic: party, income, age, and education.

🔹 Initial Claims Still Anchored: Initial claims rose 6,000 to 214,000 for the week ending April 18 (vs 210K forecast). The 4-week MA edged up to 210,750.

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