Headline and Core Inflation

Headline Inflation

It is the figure we get by Wholesale Price index which has three components--

1-Primary items (food, milk, eggs etc.

2-Fuel (kerosene, coal, petrol, diesel, gas,electricity etc)

3-Manufactured items (textiles, plastic, leather, metal products etc)

Headline inflation is volatile in nature due to food and fuel price fluctuations. So it is rarely used for policy formulations by various institutions like RBI, Ministry of Finance, Commerce Ministry etc .

Core inflation is used to take care of this problem.Core inflation is Headline inflation minus food and fuel prices.In India Non food manufacturing Inflation (NFMI) is used by RBI to calculate core inflation.NFMI better tracks the demand side pressures as no volatility due to fueal and primary products is ther which often comes due to global conditions.

P.S.--WPI is Compiled by Office of Economic Adviser,Ministry of Commerce and Industry.