HEADLINE AND CORE INFLATION

Subject: Economics

Context: Softening prices of food items like cereals, fruits and milk pulled down retail inflation to 6.93 percent in November, though it remained above the comfort level of the Reserve Bank of India.

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.