Concept: What do different inflation measures mean?
Context:
India's headline retail inflation rate rose to 0.71 per cent in November from October's all-time low of 0.25 per cent
To truly understand the economy, it is essential to look beyond the headline number and analyse different inflation measures
Headline Retail Inflation:
It refers to the overall inflation rate measured by the Consumer Price Index (CPI).
It includes all categories of goods and services, especially food and fuel, which form a large share of household expenditure.
Objective: To captures the cost-of-living experience of households
Recently, it has been kept low primarily due to falling food prices
However, households often care more about month-on-month changes in prices (which have been rising for items like vegetables) rather than year-on-year statistics.
Core Inflation:
Core inflation measures price changes excluding volatile items, specifically food and fuel
It reflects underlying price pressures in the economy.
Objective: To show underlying inflation trends and also suggests rising demand in the economy
Since people buy food and fuel regardless of price, excluding them reveals demand-side pressures for other goods
Core inflation has been inching up (standing around 4.4% in November), suggesting rising demand
“Core-Core”/ “Super Core” Inflation:
This is a more refined measure that excludes not just food and fuel, but also gold, silver, petrol, and diesel
Items like gold and silver can have extremely high inflation (over 50% recently) which distorts the standard core inflation figure
Calculations show this super core inflation fell to a record low of 2.4% in November, indicating that actual price pressures in the broader economy are currently very weak.