High gold prices, mobile tariffs pushing core inflation, says Crisil

Crisil says core inflation rose due to global volatility, driven largely by gold prices, while headline inflation fell to a 75-month low of 2.8% in May amid easing food prices

Rise in gold prices due to global uncertainty has pushed core consumer price index (CPI) inflation on an upward trajectory for four months in a row, even as the headline retail inflation fell to a 75-month low of 2.8 per cent in May, said credit-rating agency Crisil in a note on Wednesday.

 

“A decline in food inflation is pulling down headline retail inflation, but core inflation is edging up. While rising core inflation is indicative of strengthening domestic demand (and the resulting price pressure) in the economy, the recent spike is tied to global economic volatility rather than domestic factors,” the note said.

 

Between May 2024 and May 2025, core inflation rose by 111 basis points (bps) to 4.2 per cent.

 

The note said that while prices in most sub-categories within core CPI inflation declined, five bucked the trend and saw inflation rise. The five sub-categories are: gold, silver, mobile tariffs, travel & transport, and toiletries.

 

“Gold saw the sharpest increase in inflation. Global prices surged as heightened global economic uncertainty drove safe-haven investment demand for the metal across the world,” the note read. 

 

During 2024-25 (FY25), gold inflation climbed to 24.7 per cent on average against 15.1 per cent in FY24, and despite a lighter weight (2.3 per cent) in the core inflation index, the yellow metal contributed 17 per cent of the rise over the 12 months ending May 2025.

 

Hence, the note argued that similar to food and fuel categories, which are excluded from the core inflation index, gold too may be kept out while assessing the true impact of domestic demand pressures on prices, particularly during periods of high global economic uncertainty, when gold prices tend to spike.

 

“Although jewellery demand from Indian households is high, it is the global investment demand for gold from global central banks, and exchange traded funds (ETFs) that is increasingly driving up the metal’s prices. During periods of global uncertainty, it may be useful to de-emphasise the role of gold prices by excluding it from the analysis of core inflation,” the note added.

 

Prominent central banks such as the US Federal Reserve, Bank of England, European Central Bank, and Bank of Japan also include gold (in the form of jewellery) in their core inflation calculation. However, it has a significantly lower weight than in India’s index, limiting its impact on their core inflation measures.