The expectations of a policy rate cut in August are getting firmer every day in the market, especially after the latest reading of retail inflation for May. A rather dovish tone of the minutes of the monetary policy committee (MPC) meeting seems to have added more fuel to these expectations.

But a critical element and perhaps a constant bugbear for the Reserve Bank of India (RBI) has been core inflation. And here, the MPC members differ in their judgement of the future path of inflation.

Members like Ravindra Dholakia and Pami Dua believe the deceleration in core inflation is durable, while RBI governor Urjit Patel, member Chetan Ghate and deputy governor Viral Acharya sound unsure of a sustained deceleration. Michael Patra suggests that core inflation is still worryingly sticky.

While the truth could be somewhere in-between the most dovish (Dholakia) and the most hawkish (Patra) comments, it pays to see how core inflation has moved. It gets more complicated as for all the jawboning by RBI on core inflation, the central bank has not precisely defined the core inflation it monitors. From past statements, it is assumed that RBI arrives at core inflation after stripping food and fuel from the headline number. This has dropped to 4.14% in May from 4.44% in April and 4.5% a year ago.

Economists, of course, have a different take and argue that core inflation should also exclude petrol and diesel elements as well as precious metals like gold and silver. This “core core inflation" is what economists want the central bank to track.

Core core inflation has dropped to 4.01% from 4.18% in April and 4.87% a year ago. Indeed, the fall in this indicator is sharper than the core inflation that RBI is assumed to monitor.

Irrespective of which core is being tracked, there is a marked deceleration in all these indicators as shown by the accompanying chart. However, it is also true that all these cores are at around 4% for more than two years. Also, core has remained significantly above the headline inflation for more than nine months now.

To its credit, the central bank is right to be touchy because much of its success in maintaining 4% headline retail inflation depends on a further fall in core inflation. A core inflation of 4% gives no cushion to RBI from a potential rise in food and fuel inflation, which is entirely possible.

According to Patra, projections of inflation excluding food and fuel exceed that of the headline number for the rest of 2017-18.

The more than 60 basis points fall in core inflation over the last three years warrants a rate cut and makes this a done deal in August. A basis point is one-hundredth of a percentage point.

But as HSBC puts it in a recent research note, further cuts will be hard to come by as states’ fiscal profligacy and short-term impact of tax reforms could push up inflation.