CPI headline inflation minus all non-food items. Inverts the exercise. Removing every non-food item leaves food inflation alone — which is the Consumer Food Price Index, the most volatile part of the basket and the opposite of what core is meant to isolate.

WPI inflation minus all food and non-food items. Removes the entire basket and leaves nothing to measure. It is also built on the wrong index; core inflation in Indian usage is computed on the CPI.

WPI inflation minus food and energy items. The right subtraction on the wrong index. A core measure can be computed on the WPI, but the standard Indian definition — and the one the RBI's framework rests on — is on the CPI, which the WPI cannot substitute for because it excludes services and covers wholesale rather than retail prices.

Core inflation is:

Q: What is the answer to CDS (I) 2025 GK Q67?

C. Correct — C, CPI headline inflation minus food and energy items. The Economic Survey 2023-24 states it in one line — core inflation is measured by excluding food and energy items from CPI headline inflation — and explains why: stripping those two out leaves the underlying price trend by removing the volatility that comes from transitory supply shocks. Food prices swing with the monsoon, with a cold snap that ruins a tomato crop, with a sowing decision taken six months earlier; energy prices swing with global crude and with administered fuel taxes. Neither movement tells a central bank much about whether demand in the economy is running hot, and both reverse quickly. What is left after the two are removed — clothing, household goods, health, transport services, education, personal care and house rent — moves more slowly and responds to interest rates, which is precisely why the Monetary Policy Committee watches it. Two details in the option make it the right one and not merely the closest. It is built on the CPI, which is the index India's inflation target is written on, not on the WPI. And it removes exactly two families of items, not everything except food, which is what option (a) proposes. (Provisional — pending the official UPSC key.)

(a)CPI headline inflation minus all non-food items
(b)WPI inflation minus all food and non-food items
(c)CPI headline inflation minus food and energy items
(d)WPI inflation minus food and energy items

Answer

Why

Correct — C, CPI headline inflation minus food and energy items. The Economic Survey 2023-24 states it in one line — core inflation is measured by excluding food and energy items from CPI headline inflation — and explains why: stripping those two out leaves the underlying price trend by removing the volatility that comes from transitory supply shocks. Food prices swing with the monsoon, with a cold snap that ruins a tomato crop, with a sowing decision taken six months earlier; energy prices swing with global crude and with administered fuel taxes. Neither movement tells a central bank much about whether demand in the economy is running hot, and both reverse quickly. What is left after the two are removed — clothing, household goods, health, transport services, education, personal care and house rent — moves more slowly and responds to interest rates, which is precisely why the Monetary Policy Committee watches it. Two details in the option make it the right one and not merely the closest. It is built on the CPI, which is the index India's inflation target is written on, not on the WPI. And it removes exactly two families of items, not everything except food, which is what option (a) proposes.

Why the others are wrong

(a)CPI headline inflation minus all non-food items — Inverts the exercise. Removing every non-food item leaves food inflation alone — which is the Consumer Food Price Index, the most volatile part of the basket and the opposite of what core is meant to isolate.
(b)WPI inflation minus all food and non-food items — Removes the entire basket and leaves nothing to measure. It is also built on the wrong index; core inflation in Indian usage is computed on the CPI.
(d)WPI inflation minus food and energy items — The right subtraction on the wrong index. A core measure can be computed on the WPI, but the standard Indian definition — and the one the RBI's framework rests on — is on the CPI, which the WPI cannot substitute for because it excludes services and covers wholesale rather than retail prices.

Concept

Headline inflation is the year-on-year change in the whole Consumer Price Index. Core inflation is the same index with food and energy taken out, so it tracks persistent price pressure rather than transitory supply shocks. The distinction matters for policy: monetary policy acts on demand with a lag of several quarters, so a central bank chasing a spike in vegetable prices would tighten into a shock that had already passed. India adopted flexible inflation targeting in 2016, with the Monetary Policy Committee mandated to keep CPI-Combined inflation at 4 per cent within a band of plus or minus 2 percentage points; it targets headline CPI, but reads core to judge whether pressure is broad-based. Core is often split again into core goods, which divide into consumer durables and non-durables, and core services, which include house rent, education, health and transport services.

The four options are a two-by-two grid, and seeing that structure is the fastest route through them: two options use the CPI and two the WPI, two subtract food and energy and two subtract something else. Settle the index first. India's inflation target is written on the CPI, the WPI has no services in it at all, and the WPI measures wholesale rather than retail prices — so the two WPI options can go. Then settle the subtraction, where option (a) fails on its own terms: taking out all non-food items leaves only food, the very component core exists to exclude. Note that the exclusion is a rule of thumb rather than a claim that food and fuel do not matter. In India food carries close to half the CPI basket, so a long run of high food inflation eventually leaks into wages and into the prices of everything else, and the RBI has repeatedly said it cannot look through food inflation indefinitely. Core is a diagnostic instrument, not the target.

Key facts

Economic Survey 2023-24, paragraph 3.11: core inflation is measured by excluding food and energy items from CPI headline inflation.
The purpose of the exclusion is to strip out volatility from transitory supply shocks and reveal the underlying price trend.
India's monetary policy framework targets CPI-Combined inflation at 4 per cent with a tolerance band of plus or minus 2 percentage points.
The WPI carries no services at all and measures wholesale rather than retail transactions, which is why the Indian core measure is built on the CPI.
Core is commonly split into core goods — further divided into consumer durables and non-durables — and core services such as house rent, education and health.
Core inflation fell to a four-year low in FY24, with core services inflation at a nine-year low.

Reading the four options as a two-by-two grid

CPI minus food and energy→CORE INFLATION. The standard Indian definition, stated in the Economic Survey — the underlying trend once transitory supply shocks are removed.

CPI minus all non-food items→Leaves only food — that is the Consumer Food Price Index, the most volatile part of the basket, and the exact opposite of core.

WPI minus food and energy→Right subtraction, wrong index. The WPI has no services in it and measures wholesale, not retail, prices.

WPI minus all food and non-food items→Removes the whole basket and leaves nothing to measure.

Why the exclusion is only a rule of thumb→Food is close to half the CPI basket, so persistent food inflation eventually feeds wages and other prices. Core is a diagnostic, not the target.

Settle the index first, then the subtraction. Only one option survives both tests.

Study next

Headline inflation, core inflation and the Consumer Food Price Index — what each measuresIndia's flexible inflation targeting framework and the composition of the Monetary Policy CommitteeCPI versus WPI — coverage of services, food weights and which index the RBI targetsCore goods and core services, and why services inflation is stickierSupply-side versus demand-side inflation and the policy response appropriate to each

Common traps

Reading 'core' as 'the essentials' and so keeping food and fuel in, when core is precisely the measure that removes them.
Computing core on the WPI. A core measure can be built on any index, but the Indian usage and the policy framework rest on the CPI.
Treating core as the RBI's target. The target is headline CPI-Combined; core is read alongside it to judge how broad the pressure is.

As a one-line definition like this one, or through a statements item on what the RBI targets and which index carries services. Numerical items ask you to identify which components were removed.

Related PYQs

UPSC_2020_GS1_Q672020Open & attempt →

Consider the following statements: 1. The weight of food items is higher in the Consumer Price Index (CPI) than in the Wholesale Price Index (WPI). 2. WPI does not capture changes in the prices of services, whereas CPI does. 3. The Reserve Bank of India has adopted WPI for its primary measure of inflation and for deciding key policy rates. Which of the statements given above is/are correct?

(a) 1 and 2 only
(b) 2 only
(c) 3 only
(d) 1, 2 and 3

Answer(a) 1 and 2 only

The item that settles the index half of this question. Its third statement is false precisely because the RBI works on the CPI, which is why the two WPI options here can be dropped before the subtraction is even considered.

CDS_GK_2023_I_Q652023Open & attempt →

Which one of the following is a measure that can be used by the Government for combatting inflation?

(a) Increasing the non-planned expenditure on defence, police, etc.
(b) Providing more subsidies on exports
(c) Increasing the rate of interest on savings and fixed deposits
(d) Reduction in the cash reserve ratio (CRR)

Answer(c) Increasing the rate of interest on savings and fixed deposits

The policy end of the same topic on an officially keyed paper. Raising interest rates works on demand, which is why the measure that strips out supply-driven food and fuel swings is the one policymakers watch.

Practice

practice — not a real PYQ
The Reserve Bank of India's flexible inflation targeting framework is written on which one of the following?
- (a)Wholesale Price Index
- (b)CPI-Combined (rural plus urban)
- (c)CPI for Industrial Workers
- (d)GDP deflator
Answer(b) CPI-Combined (rural plus urban) — the target is 4 per cent with a tolerance band of plus or minus 2 percentage points.
practice — not a real PYQ
Food and energy are excluded from core inflation mainly for which one of the following reasons?
- (a)Their prices are administered by the Government
- (b)They carry very small weights in the CPI
- (c)Their prices are volatile and driven by transitory supply shocks
- (d)They are not consumed by urban households
Answer(c) Their prices are volatile and driven by transitory supply shocks — removing them leaves the slower-moving, demand-sensitive part of the basket that monetary policy can actually influence.