What is the difference between headline inflation and core inflation?

Headline inflation, as the name suggests, is the total inflation for the period, comprising a basket of commodities. Earlier, in India WPI (Wholesale Price Index) was considered for headline inflation. Now, India has migrated to CPI (Consumer Price Index) as the measure of headline inflation.

Core inflation, on the other hand, removes volatile goods from the basket of commodities tracking headline inflation. These volatile commodities mainly comprise food and beverages (including vegetables) and fuel and light (crude oil). Since prices of these products change daily, they are removed. With their removal, the core CPI becomes more stable, as the swift fluctuations are eliminated.

While headline inflation is the total inflation for the economy, core inflation is believed to represent the underlying trend in inflation and hence often used by policy makers to determine the future strategies for the economy.

For June 2018, India’s headline inflation was 5%, while core inflation was 6.5%.