Core inflation makes it tough to check prices

Core retail inflation rose from 6.3 per cent in September to 6.5 per cent in October even as the overall rate of price rise eased from 7.41 per cent to 6.77 per cent, indicating price pressures will sustain longer than expected.

- INDIVJAL DHASMANA

The rate of core price rise has been over five per cent for over two years now and remained over six per cent for five months till October in the current financial year.

Core inflation refers to the rate of price rise in non-food and non-fuel items. Food and fuel prices are considered volatile and hence core inflation represents the nonvolatile nature of inflation.

As such, it becomes difficult to bring down inflation if the core part of it remains elevated.

Madan Sabnavis, chief economist at the NE Bank of Baroda, ANA said core inflation is largely driven by products that have a maximum retail price (MRP) and once they increase they rarely come down even when prices of inputs are correct.

"Hence, it tends to get embedded in the system. For example higher steel prices push up prices of automobiles. But once steel prices come down, rarely do auto prices recede," he said.

Vivek Kumar, economist at Quantico Research, said there is strong evidence of transmission between noncore and core WPI inflation.