Understanding inflation dynamics is critical for anticipating Fed policy and asset allocation. Key approach: (1) Headline CPI captures food and energy but is volatile; Core CPI (ex food & energy) reveals the underlying trend. Markets react most to Core CPI. (2) Watch month-over-month changes rather than year-over-year — MoM shows the latest momentum. Annualize the 3-month MoM rate for the best near-term trend. (3) PCE (the Fed's preferred measure) typically runs 0.3-0.5% lower than CPI. Watch Core PCE especially. (4) 'Supercore' (Core Services ex Housing) is the Fed's current key focus — it captures wage-driven inflation. (5) Shelter/rent has a 12-18 month lag in CPI due to measurement methodology — use real-time rent indices (Zillow, ApartmentList) for forward-looking insight. (6) Breakeven inflation rates (TIPS spread) show market inflation expectations. (7) Track commodity prices (oil, food), shipping rates, and wage growth as leading indicators.