Decline in headline inflation good news, but core inflation edging up: CRISIL

Leading ratings agency CRISIL Limited in its report said that headline inflation based on the CPI fell to 2.8% in May 2025, which is a good omen for the economy.

According to CRISIL, a decline in food inflation is pulling down the headline retail inflation, but core inflation (excluding food and fuel) is edging up. Although remaining below the decadal trend, the core inflation has been above 4% for four months in a row.

CRISIL said a persistent rise in core inflation can put pressure on headline inflation.

According to the ratings firm, rising core inflation is indicative of strengthening domestic demand in the economy. "But a deep dive into core inflation suggests that most of its recent rise is tied to global economic volatility rather than domestic factors.

CRISIL said gold prices react to global and not domestic signals. "Although gold carries a small weight in the headline CPI (1.1% of the total index), the inclusion of it in the core CPI inflation distorts domestic price signals.

Gold carries a higher weight in India's core inflation index than it does elsewhere. Other prominent central banks also include gold in their core inflation index, but its weight is significantly lower than in India, limiting its impact on their core inflation measure.

In India, a higher weight for gold is possibly due to its higher share in consumption compared to other countries. Keeping out gold prevents misinterpretations of core CPI signals, CRISIL said in the report.