Question

Consider the following statements:
(1) Headline inflation may not present an accurate picture of the current state of the economy.
(2) Inflationary spikes occur when a particular section of the economy experiences a sudden price rise.
Which of the statements given above is/are correct?

• A. Only 1
• B. Only 2
• C. Both 1 and 2
• D. Neither 1 nor 2

Answer 1

The correct option is C Both 1 and 2

Headline inflation includes the inflation of all sectors and commodities, food and energy as well, which often experience inflationary spikes. It is for this reason that headline inflation may not present an accurate picture of the current state of economy. These inflation spikes are not there to stay all the time and hence distort the inflation numbers. Core inflation, however, does not include food and energy sectors in the measurement of inflation.