Letters: Core problem

Apropos Abheek Barua's article "Good news at last" (May 1), among other data, the author has cited moderation of core inflation as a good news, and in the process, differentiated between core and headline inflation. However, core inflation, or inflation stripped of volatile food and energy components, is a popular measure followed by the US Federal Reserve. The reason is an inflation index ought to capture only the structural components - those components of the index for which prices do not adjust readily. Food and energy in the US being actively traded through futures have no adjustment problems and, therefore, headline inflation is being stripped of these two components. However, in India, food prices (owing to a periodic adjustment of the minimum support prices) and energy (owing to an administered pricing regime for the most inflation-sensitive segments: diesel, LPG and CNG) are indeed part of the structural components. Hence, stripping headline inflation is fraught with conceptual problems.

Indranil Chakraborty Bangalore

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