Measures of Core Inflation for India

In view of increasing emphasis on 'price stability' in the formulation of monetary policy and sharp volatility in the WPI headline inflation rate, there has been a need for measures of underlying inflation rates for India as the existing measures do not provide a reliable gauge of inflation at any point of time. Against this background, this paper makes a comprehensive attempt at providing alternate estimates of core inflation for India following the principle of exclusion and limited influence estimators of trimmed mean as well as weighted median. The monthly estimates for the 16-year period from April 1983 to March 1999 reveal that 20 per cent trimmed mean WPI provides a better explanation of inflation dynamics.