CORE INFLATION

PREVIOUS YEAR QUESTION
2017 NOV III
Core inflation has been described as:
A) Headline inflation−food inflation
B) Headline inflation−(food inflation + fuel inflation)
C) Headline inflation−fuel inflation
D) Food inflation + Fuel inflation
ANS: (B)
• The concept of core inflation was initially introduced by Robert J Gordon in 1975 and later developed by Eckstein in 1981.
• Core inflation is also termed as underlying inflation or manufacturing inflation
• Core inflation is measured by deducting food and fuel inflation from headline inflation.
• The prices of food and energy is volatile in nature
• The core inflation is essentially demand driven. The changes in the demand of food items and fuel influence its price immediately and lead to fluctuations in price.
• It can be considered as an accurate measure of underlying inflation in the economy by eliminating the prices of goods having volatile nature such as food and fuel from calculation.
• HEADLINE INFLATION: It measures the total inflation in the economy including food and energy. It is not adjusted for seasonality or volatile elements.