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Consider the following statements regarding “core inflation”.
1. Core inflation is an indicator of long-term trend in the inflation.
2. While calculating core inflation transitory price changes are excluded.
1. Core inflation is an indicator of long-term trend in the inflation.
2. While calculating core inflation transitory price changes are excluded.
Which of the above statement/s is/are correct?
- a)1 only
- b)2 only
- c)Both 1 and 2
- d)Neither 1 nor 2
Correct answer is option 'C'. Can you explain this answer?
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Verified Answer
Consider the following statements regarding “core inflation̶...
Core inflation is the non food manufacturing inflation. Core inflation shows price rise in allgoods and services excluding energy and food articles.In India, it was first time used in the financial year 2000–01. This was criticized by experts onaccount of excluding food articles and energy out of the inflation and feeling satisfied on theinflation front. Basically, in the western economies, food and energy are not the problems forthe masses, while in India these two segments play the most vital role for them.
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Consider the following statements regarding “core inflation̶...
Explanation:
Core inflation is a measure of inflation that excludes certain items that face volatile price movements, notably food and energy. The rationale behind excluding these items is that their prices are subject to temporary shocks, which may not reflect the long-term trend in inflation.
1. Core inflation is an indicator of long-term trend in the inflation:
This statement is correct. Core inflation measures the underlying inflation trend by excluding volatile items, such as food and energy, which can fluctuate significantly due to supply and demand factors. By excluding these items, core inflation provides a more stable measure of the inflation trend, which can be useful for monetary policy decisions.
2. While calculating core inflation transitory price changes are excluded:
This statement is also correct. Core inflation excludes temporary price changes that are not indicative of underlying inflation trends. For example, if there is a temporary spike in oil prices due to geopolitical tensions, this would not necessarily reflect a sustained increase in inflation. By excluding these types of transitory price changes, core inflation provides a more accurate measure of the long-term inflation trend.
Therefore, the correct answer is option C (Both 1 and 2).
Core inflation is a measure of inflation that excludes certain items that face volatile price movements, notably food and energy. The rationale behind excluding these items is that their prices are subject to temporary shocks, which may not reflect the long-term trend in inflation.
1. Core inflation is an indicator of long-term trend in the inflation:
This statement is correct. Core inflation measures the underlying inflation trend by excluding volatile items, such as food and energy, which can fluctuate significantly due to supply and demand factors. By excluding these items, core inflation provides a more stable measure of the inflation trend, which can be useful for monetary policy decisions.
2. While calculating core inflation transitory price changes are excluded:
This statement is also correct. Core inflation excludes temporary price changes that are not indicative of underlying inflation trends. For example, if there is a temporary spike in oil prices due to geopolitical tensions, this would not necessarily reflect a sustained increase in inflation. By excluding these types of transitory price changes, core inflation provides a more accurate measure of the long-term inflation trend.
Therefore, the correct answer is option C (Both 1 and 2).
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Consider the following statements regarding “core inflation̶...
1only
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Consider the following statements regarding “core inflation”.1. Core inflation is an indicator of long-term trend in the inflation.2. While calculating core inflation transitory price changes are excluded.Which of the above statement/s is/are correct?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'C'. Can you explain this answer?
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