Economic survey has said that refined core inflation has been lower than conventional core inflation
The economic survey has made a pertinent observation by noting that refined core inflation, which was 5.9 per cent during April-December period of 2021, has been actually lower than the conventional core inflation.
“Since June 2020, refined core inflation has been much below the conventional core inflation, indicating the impact of inflation in fuel items in the conventional core inflation measure,” the survey said.
“During the current financial year, retail core inflation (which is inflation excluding ‘food and beverages’ and ‘fuel and light’ – the transitory components of the index) has shown a rising trend. Average core inflation for the period April-December 2021 stood at 5.9 per cent as against 5.4 per cent in corresponding period last year, and remained below 6 per cent during most months,” the economic survey noted.
It explained that the conventional way of calculating retail core inflation, instead of excluding the volatile fuel items from core inflation, continue to include volatile fuel items in core inflation. As a result, the fuel price rise continues to impact core inflation.
“Refined” core inflation was constructed to address this anomaly by excluding main fuel items namely “petrol for vehicle”, “diesel for vehicle” and “lubricants and other fuels for vehicles”, in addition to “food and beverages” and “fuel and light” from the headline retail inflation.