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Saturday, June 9, 2012

Headline inflation Vs. Core inflation



Headline inflation or general inflation is the increase in the prices of all goods and services in the economy. Some prices of some goods are of volatile nature and the price movement is determined by the demand and supply.Some food articles become excessively cheaper in their season and with the season ending becomes very dearer. Fuel prices depend on the international crude prices and are very susceptible to change.

While, Core inflation measures the inflation excluding a few items. Generally items with very volatile prices movements like food items, fuel and metal are excluded.   These items are generally traded on the commodity exchanges and their price movements depend on various global and domestic reasons.
The exclusion is done with a purpose of avoiding misleading results appearing due to sudden spurt or decline in the prices of these items.

Core inflation matters a lot for the economists and the central bank as they have to formulate monetary policies according to it, while headline inflation matters a lot for the people as their cost of living depends on it.

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