With reference to the Indian economy, consider the following statements regarding Core Inflation:
1. It excludes volatile food and energy components from headline inflation.
2. In India, Consumer Price Index (CPI) combined headline inflation is targeted by the Monetary Policy Committee (MPC).
Which of the statements given above is/are correct?
Answer and explanation
Correct answer: D. Both 1 and 2
- Step 1: Core inflation strips out food and fuel price volatility to measure underlying persistent price pressure. Statement 1 is correct.
- Step 2: Under the RBI Act amended in 2016, the MPC is legally mandated to target headline CPI combined inflation at 4% with a tolerance band of +/- 2%. Statement 2 is correct.
Answer
Both 1 and 2 are correct.
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