Which of the following statements is/are correct in respect of inflation in India ? A. Core inflation include the prices of food and energy. B. Headline inflation exclude food inflation. C. Headline inflation is more volatile in nature than core inflation. Select the answer using the codes given below :

Correct — option (4), Only C.

Take the three statements one at a time.

Statement A is wrong. Core inflation is built by leaving out the volatile items — food and energy (fuel). A measure that includes food and energy prices is headline inflation, not core.

Statement B is wrong. Headline inflation is the change in the full Consumer Price Index basket, so it includes food. In India's CPI (Combined), food and beverages alone carry a weight of 45.86 out of 100.

Statement C is correct. Food and fuel prices swing with the monsoon, harvests and global oil prices. Because headline inflation contains them and core inflation does not, headline inflation moves more sharply from month to month.

Only C survives, which is the code Only C.

The idea to remember: core = headline minus food and fuel. Everything about volatility follows from what is removed.

Why the others are wrong

• (1)
  A and B only — This code accepts both wrong statements and rejects the only correct one.

  A puts food and energy inside core inflation, when core is defined by excluding them. B takes food out of headline inflation, when headline covers the whole CPI basket. It would fit only if the two definitions were swapped.

• (2)
  A and C only — C is right, but A is not. Core inflation excludes food and energy prices; that exclusion is the reason core is steadier.

  A and C also pull against each other: leaving out food and energy is what makes core steadier, so a core that kept them would lose the reason for C's contrast. The code needs A to be true, and it is not.

• (3)
  B and C only — C is right, but B is not. Headline inflation covers the entire CPI basket, food included — food and beverages weigh 45.86 of 100 in CPI (Combined).

  B also undercuts C: food prices are a main source of headline volatility, so a headline measure without food would lose much of what makes it swing. The code needs B to be true, and it is not.

Headline inflation is the year-on-year change in the full consumer price index. In India that is the All India CPI (Combined), released monthly by the National Statistics Office, with base year 2012=100 as of February 2025.

Core inflation removes the items whose prices jump with supply shocks — commonly food and fuel — to show the underlying trend in prices. The idea is to separate a temporary spike, such as a bad vegetable harvest, from lasting price pressure.

Food and fuel are a large part of the Indian basket. In CPI (Combined), food and beverages weigh 45.86 and fuel and light 6.84, together more than half.

The inflation target for monetary policy, set by the Central Government in consultation with RBI, is defined on headline CPI: 4%, with a band of 2% to 6%.

Key facts

• Headline inflation is the year-on-year change in the All India CPI (Combined); its base year was 2012=100 as of February 2025.
• Core inflation is commonly measured as CPI inflation excluding food and fuel, its volatile components.
• In CPI (Combined), food and beverages carry a weight of 45.86 and fuel and light 6.84, out of 100.
• Under Section 45ZA of the RBI Act, the Central Government, in consultation with RBI, sets the CPI inflation target once in five years.
• The 4% target (band 2%–6%) was notified on 5 August 2016 and retained on 31 March 2021 for April 2021–March 2026.

Common traps

• Core is defined by what it excludes. Any statement that puts food or energy inside core inflation is wrong by definition.
• Headline inflation is the complete index, not a narrowed one. A statement that removes food from headline describes core inflation instead.
• Check that the statements in a chosen code do not pull against each other. "Core includes food" sits badly with "headline is more volatile than core", because leaving out food and fuel is what makes core steadier.

UnlockIAS will link similar questions from RAS Pre 2023 and 2018 here once those papers are published on this site.

• practice — not a real PYQ

  The inflation target notified under Section 45ZA of the Reserve Bank of India Act, 1934 is defined in terms of –

  • (a)Wholesale Price Index
  • (b)Consumer Price Index (Combined)
  • (c)Core CPI excluding food and fuel
  • (d)GDP deflator
  Answer(2) — The Central Government, in consultation with RBI, sets the target as 4% CPI inflation, with a band of 2% to 6%, measured on the headline CPI (Combined).

  Option (1) is a wholesale-level index, option (3) leaves out food and fuel that the target includes, and option (4) is a national-accounts price measure, not the target index.

• practice — not a real PYQ

  Which of the following best explains why core inflation is less volatile than headline inflation?

  • (a)Core inflation covers more items than headline inflation.
  • (b)Core inflation leaves out food and fuel, whose prices react sharply to supply shocks.
  • (c)Core inflation covers only urban consumers.
  • (d)Core inflation is measured over a period longer than one year.
  Answer(2) — Removing food and fuel removes the prices most exposed to harvests, the monsoon and oil markets, so the remaining index moves more smoothly.

  Option (1) is the reverse: core covers fewer items. Options (3) and (4) describe features core inflation does not have; it uses the same all-India basket minus food and fuel, compared year on year.