Question

Which of the following is excluded from headline inflation to arrive at core inflation?

• A. Energy prices
• B. Gold prices
• C. Automobile prices
• D. Share prices

Hint:

Core inflation provides a more stable measure of inflation by excluding volatile items like energy prices, which can fluctuate greatly and distort the overall inflation picture.

Answer 1

The Correct Option is A

Headline inflation includes all items in the consumer price index (CPI), including volatile items like food and energy prices. Core inflation, on the other hand, excludes certain volatile items to give a clearer picture of long-term inflation trends. This is done to remove short-term fluctuations caused by temporary price changes. - Energy prices (A): Energy prices, such as those for oil and gas, are excluded from core inflation because they are highly volatile and can fluctuate significantly over short periods.
- Gold prices (B): Gold prices are generally not excluded from core inflation calculations because they are less volatile than energy prices.
- Automobile prices (C): Automobile prices are typically included in core inflation because they are not considered as volatile as energy prices.
- Share prices (D): Share prices are excluded from inflation indices entirely because they are not part of the basket of goods used to calculate inflation.
The correct answer is (A), as energy prices are excluded from core inflation due to their volatility. Final Answer: (A) Energy prices.