Core inflation is:

The correct answer is CPI headline inflation minus food and energy items.

Key Points

• Core inflation is a measure of inflation that excludes volatile items such as food and energy prices from the Consumer Price Index (CPI).
• This measure provides a more stable and accurate reflection of the underlying inflationary trends in the economy, as food and energy prices are highly susceptible to short-term shocks.
• By focusing on core inflation, policymakers like central banks (e.g., RBI) can better evaluate the long-term inflation trajectory and make informed monetary policy decisions.
• The Reserve Bank of India (RBI) often uses core inflation as a key indicator to set its monetary policy and inflation targeting framework.
• Core inflation is also referred to as "non-volatile inflation" because it eliminates price fluctuations from the most unpredictable sectors of the economy.

Additional Information

• Consumer Price Index (CPI):
  • CPI is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care.
  • It is widely used as a benchmark for inflation in the economy.
  • CPI headline inflation includes all components, including food and energy prices.
• Volatile Items:
  • Food and energy prices are considered volatile due to their frequent price changes caused by factors like weather, geopolitical events, and supply chain disruptions.
  • Excluding these items helps derive a clearer picture of underlying inflation trends.
• Other Inflation Measures:
  • Wholesale Price Index (WPI): Measures price changes at the wholesale level and is broader but less consumer-focused than CPI.
  • Headline Inflation: Includes all items in the price index, including food and energy, providing a complete but often volatile measure of inflation.
• Monetary Policy:
  • Central banks use inflation data, including core inflation, to adjust interest rates and manage economic growth and stability.
  • In India, the RBI targets inflation at 4% (+/- 2%) using the CPI as a benchmark.