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Current Affairs 2023

Core Inflation - UPSC Current Affairs

Inflation is an important measure of economic health, but it can be skewed by volatile items such as food and energy. Core inflation, which excludes these items, provides a more accurate picture of underlying trends in prices. This brief article explains the importance of core inflation, how it is calculated, and the benefits of using it to understand the overall health of an economy and make informed decisions about addressing inflation.

Jan 13, 2023

2 min read

Core inflation is a measure of inflation that excludes certain items that tend to be more volatile in price. These items, such as food and energy, can fluctuate greatly in price and can skew the overall inflation rate. By excluding these items, core inflation provides a more accurate picture of the underlying trend in prices.

Inflation is a measure of how much prices are rising over time. It's important to measure inflation to understand the overall health of an economy. When prices are rising, it can be a sign that the economy is growing and people have more money to spend. However, when inflation is too high, it can be a sign that the economy is overheating and can lead to problems such as high interest rates and a decrease in purchasing power.

Core inflation is calculated by taking the Consumer Price Index (CPI) and excluding certain items such as food and energy. These items tend to be more volatile in price and can skew the overall inflation rate. By excluding these items, core inflation provides a more accurate picture of the underlying trend in prices.

One of the key benefits of using core inflation is that it can help to identify underlying trends in prices. For example, if the overall inflation rate is high but the core inflation rate is low, it could indicate that the high inflation is due to temporary factors such as a spike in food prices. This can help policymakers to make more informed decisions about how to address inflation.

Another benefit of using core inflation is that it can help to identify potential problems in the economy. For example, if core inflation is rising at a faster rate than overall inflation, it could indicate that there is increasing pressure on prices from factors such as wages or production costs.

Needless to say, core inflation is an important measure of inflation that provides a more accurate picture of the underlying trend in prices. It can help policymakers to make more informed decisions about how to address inflation and can help to identify potential problems in the economy. By keeping an eye on core inflation, we can get a better understanding of the overall health of the economy and make more informed decisions about how to address inflation.