Core inflation, or inflation in items other than food and fuel, is going up. Economists track this inflation yardstick, because it gives an indication of whether the output gap, or the amount by which the actual output of an economy falls short of its potential output, is closing.
The chart shows that three different measures of core inflation—core, core core and super core, as designated by CMIE—are all going up. Core CPI is consumer price inflation excluding the fuel and food groups.
Core Core CPI is inflation excluding food group, fuel & light group and petrol, diesel & other fuels for vehicles. And Super Core is consumer price inflation excluding all the above as well as house rent. Rising core inflation is an indication of robust growth.
The monetary policy committee at its last meeting said that “domestic economic activity has exhibited sustained revival in recent quarters and the output gap has almost closed."
Gaurav Kapur, chief economist at IndusInd Bank, echoed that sentiment and pointed out that core inflation is likely to stabilize around the current levels. He said the low growth in the index of industrial production is due to the base effect and the Purchasing Managers indices show robust growth.
Taken together with the hike in minimum support prices, which will prevent food prices from coming down, the stage has been set for a rate hike by RBI.