The great inflation escape

The big question doing the rounds is: Will headline move towards core or will core move towards headline?

India, an economy infamous for high and persistent inflation, is currently coming to terms with the opposite phenomenon — inflation over the past year has not just fallen, but fallen more than expected. Inflation forecast errors have become one-sided.

Moreover, inflation components continue to confound, with persistent divergence between food and core prices. (Core inflation is defined as headline inflation minus food and fuel.) In the latest reading, food inflation is at -0.1 per cent and core inflation at 6.1 per cent, with a mysterious 6 percentage point gap between them. Headline inflation at 2.6 per cent is well under the