Figure 1. Mean and standard deviation of headline, core and food inflation

Impact of food inflation on headline inflation in India
93
Source: Author’s own calculations using CPI-C data derived from the Ministry of Statistics and Programme
Implementation. Available at www.mospi.gov.in/.
present sample. Core inflation is usually not considered to be volatile however, in the present case it emerges as the most volatile measure of inflation with a standard deviation of 3.81. The month rolling standard deviations of the three inflation measures also depict a similar picture. As indicated in figure 2, the month rolling standard deviation of core inflation is more than the month rolling standard deviation of the headline inflation and the food inflation for the entire time period, December to June 2019. It is also interesting to note that the rolling standard deviation of food inflation appears to be the least volatile component with the lowest standard deviation throughout the rolling window.
Ideally, the mean of the headline inflation should be around the mean of core inflation, but the standard deviation of the core inflation should be lower than the standard deviation of the headline inflation (Reserve Bank of India, 2019). Accordingly, it can be concluded that the core inflation appears to be the most volatile component of headline inflation from the preliminary analysis.
From figure 3, it can be observed that the headline inflation and the core inflation are more or less moving together. Fora major part of the study sample, the core inflation appears to be higher than the headline inflation. Post-November 2017, however,
the core inflation fell below the headline inflation. Figures 4 and 5 clearly show that the food inflation does not meander either with the headline inflation or the core inflation. It

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