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In the context of the types of Inflation, consider the following statements:
Headline Inflation refers to the change in the value of all goods in the basket including food and fuel.
Core Inflation is more volatile than headline inflation.
Which of the statements given above is/are correct?
- a)1 only
- b)2 only
- c)Both 1 and 2
- d)Neither 1 nor 2
Correct answer is option 'A'. Can you explain this answer?
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Most Upvoted Answer
In the context of the types of Inflation, consider the following stat...
- Headline inflation is the total inflation in an economy. The headline inflation figure includes inflation in a basket of goods that includes commodities like food and energy. Hence statement 1 is correct.
- Core inflation excludes food and fuel items from headline inflation. Since the prices of fuel and food items tend to fluctuate and create ‘noise’ in inflation computation, core inflation is less volatile than headline inflation. Hence statement 2 is not correct.
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In the context of the types of Inflation, consider the following stat...
Explanation:
Inflation can be categorized into different types based on the components included in the calculation.
Headline Inflation:
- Headline Inflation refers to the change in the value of all goods in the basket including food and fuel.
- It is a broad measure that includes all items in the basket of goods used to track changes in the cost of living.
- Headline inflation is often influenced by external factors such as global commodity prices, which can make it more volatile.
Core Inflation:
- Core Inflation excludes volatile items like food and energy prices from the basket of goods.
- Core Inflation is considered to be a better indicator of underlying inflation trends as it strips out the most volatile components.
- Core Inflation is generally less volatile than Headline Inflation because it eliminates the impact of temporary price shocks in food and fuel prices.
Therefore, the correct statement is that "Headline Inflation refers to the change in the value of all goods in the basket including food and fuel," while the second statement about Core Inflation being more volatile than headline inflation is incorrect.
Inflation can be categorized into different types based on the components included in the calculation.
Headline Inflation:
- Headline Inflation refers to the change in the value of all goods in the basket including food and fuel.
- It is a broad measure that includes all items in the basket of goods used to track changes in the cost of living.
- Headline inflation is often influenced by external factors such as global commodity prices, which can make it more volatile.
Core Inflation:
- Core Inflation excludes volatile items like food and energy prices from the basket of goods.
- Core Inflation is considered to be a better indicator of underlying inflation trends as it strips out the most volatile components.
- Core Inflation is generally less volatile than Headline Inflation because it eliminates the impact of temporary price shocks in food and fuel prices.
Therefore, the correct statement is that "Headline Inflation refers to the change in the value of all goods in the basket including food and fuel," while the second statement about Core Inflation being more volatile than headline inflation is incorrect.
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In the context of the types of Inflation, consider the following statements: Headline Inflation refers to the change in the value of all goods in the basket including food and fuel. Core Inflation is more volatile than headline inflation. Which of the statements given above is/are correct?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'A'. Can you explain this answer?
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