Question

What is the difference between inflation rate and core inflation rate??

Answer 1

Inflation in the average price of basket of selected goods and services of a nation, over a period of time. To state simply it is general price level in an economy. Increae in inflation leads to increase in prices of goods and services, this reduce the purchasing power of the money. Also inflation is necessary evil because it makes people to spend money on goods and services there by facilitating economic growth.

Core inflation is average price level of basket of goods and services excluding those from food and energy sectors. The reason why goods and services from food and energy is exclued is because these are highly volatile. These goods are necessary goods and because of this their demand doesnt change much even when its price rise. The effect of these goods on inflation are short term, meaning these will go back normal levels. So we have a seperate metric called core inflation to measure inflation levels excluding prices of food and energy goods and services.