Don’t need to revise 4 per cent inflation target, focus remains on core CPI: RBI Governor

Subject: Economics

Section: Inflation and Unemployment

Context:

RBI does not feel there is a need to revise the inflation target 4 per cent
RBI recently admitted that core inflation has remained sticky at over 6 per cent which is “definitely a concern” and he said that the RBI’s focus continues to be core inflation.
The headline inflation eased to one-year low of 5.72 per cent in December from 5.88 per cent the previous month. The core inflation stood at 6.31 per cent.
According to data from the Statistics Ministry, a total of 23 States and Union Territories have shown higher rural retail inflation than the urban inflation.

Concept:

Headline Inflation

Headline inflation is the raw inflation figure reported through the Consumer Price Index (CPI) that is released monthly by the Bureau of Labor Statistics.
Headline inflation is not adjusted to remove highly volatile figures, including those that can shift regardless of economic conditions.
Headline inflation is often closely related to shifts in the cost of living, which provides useful information to consumers within the marketplace.
The headline figure is not adjusted for seasonality or for the often-volatile elements of food and energy prices, which are removed in the core Consumer Price Index (CPI).

Core Inflation

Core inflation is the change in the costs of goods and services but does not include those from the food and energy sectors.
This measure of inflation excludes these items because their prices are much more volatile.
It is most often calculated using the consumer price index (CPI), which is a measure of prices for goods and services.

Consumer Price Index/ Retail Inflation:

Retail prices of goods and services: When we talk about the rate of inflation, it often refers to the rate of inflation based on the consumer price index (CPI).
The CPI tracks the change in retail prices of goods and services which households purchase for their daily consumption.
The Consumer Price Index is a comprehensive measure used for estimation of price changes in a basket of goods and services representative of consumption expenditure in an economy.
It is one of the most important statistics for an economy and is generally based on the weighted average of the prices of commodities and gives an idea of the cost of living.
The percentage change in this index over a period of time gives the amount of inflation over that specific period, i.e., the increase in prices of a representative basket of goods consumed.

Categories of CPI:

At the national level, there are four Consumer Price Index (CPI) numbers. These are:
CPI for Industrial Workers (IW) – Base Year 2016
CPI for Agricultural Labourers (AL) and CPI for Rural Labourers (RL) – Base Year 1986-87
CPI (Rural/Urban/combined) – Base Year 2012
While the first three are compiled and released by the Labour Bureau in the Ministry of Labour, the fourth one is released by the NSO in the Ministry of Statistics and Programme Implementation.