You’ve highlighted a crucial point about India’s inflation landscape. While the dip in headline CPI inflation to 2.8% in May 2025 is certainly good news, CRISIL’s report reveals a subtle but significant concern: core inflation (excluding volatile food and fuel prices) is quietly on the rise.
Understanding the Nuance: Headline vs. Core Inflation
The decline in headline inflation is primarily driven by cooling food prices. This offers some relief, as food accounts for a substantial portion of the average Indian household’s expenditure. However, core inflation has consistently stayed above 4% for the past four months. While still below the ten-year average, this upward trend in core inflation is a key indicator to watch.
What’s Driving Core Inflation?
Typically, a rise in core inflation signals strengthening domestic demand. However, CRISIL’s analysis suggests that global economic volatility, rather than purely domestic factors, is largely responsible for this recent uptick.
The Gold Conundrum in India’s Core Inflation
A particularly interesting point raised by CRISIL is the role of gold prices in India’s core inflation calculation. Gold, being a global commodity, reacts to international signals, not domestic ones. Yet, it carries a relatively higher weight in India’s core CPI compared to other countries. This inclusion, according to CRISIL, can distort the true picture of domestic price signals. Other major central banks also include gold in their core inflation, but its lower weight limits its impact. CRISIL believes that excluding gold from core CPI would offer a more accurate reflection of underlying domestic price pressures, preventing potential misinterpretations.
This situation presents a complex picture for policymakers. The cooling headline inflation offers breathing room, but the persistent rise in core inflation, especially if it’s influenced by external factors and methodological nuances like gold’s weight, requires careful monitoring.
What are your thoughts on how central banks should factor in global commodity prices like gold when assessing core inflation?