Indian Economy : 9 : Core Inflation

Headline vs Core Inflation Difference

What is headline inflation? How is it different from Core inflation?

Headline inflation

• It is the figure we get by Wholesale Price index
• Wholesale price index (WPI), has three components.

1. Primary items (food, milk, eggs etc.)
2. Fuel (kerosene, coal, petrol, diesel, gas,electricity etc)
3. Manufactured items (textiles, plastic, leather, metal products etc)

Core inflation

• it is Headline inflation minus food and fuel prices.
• The food and fuel prices keep changing based on season and external factors. Hence, headline inflation gives a very volatile number.
• The policymakers (RBI and Fin.Min.), cannot use this number to make future predictions or long-term policies, so they also keep a separate watch on Core-Inflation number.

How do we measure inflation in India?

 Central Statistical  Organisation  (CSO) under the Ministry of statistics and program implementation calculate the WPI, CPI. 

• The same org. also responsible for compiling Index of industrial production (IIP) 

Related to this

Phillips curve

If the unemployment rate is LOW, Inflation rate will be HIGH.

Stagflation

Both unemployment and inflation rates are high and growth rate is low.