Q. Consider the following statements:

1. Core inflation excludes volatile items such as food and fuel.
2. It reflects underlying long-term inflation trends.
3. Headline inflation is always lower than core inflation.
4. India uses CPI-based core inflation for analysis.

Which of the above statements is / are correct?
Answer: Only 1, 2 and 4
Notes: Core inflation excludes highly volatile items like food and fuel, thus better reflecting long-term inflation trends. India commonly uses CPI-based core inflation as an analytical tool. Headline inflation, however, includes all components and is not always lower than core inflation; it can be either higher or lower depending on market dynamics.