| Consider the following statements |
| 1. Headline inflation is a measure of the total inflation within an economy. |
| 2. Headline inflation is affected by areas of the market which may experience sudden inflationary spikes such as food, vegetables or energy. |
| Which of the statements given above is/are correct? |
A) Only 1
B) Only 2
C) Both 1 and 2
D) neither 1 nor 2
Correct Answer: C
Solution :
[c] Headline inflation is a measure of the total inflation within an economy, including commodities such as food and energy prices (e.g., oil and gas), which tend to be much more volatile and prone to inflationary spikes. While headline inflation tends to get the most attention in the media, core inflation is often considered the more valuable metric to follow. Core inflation removes the CPI components that can exhibit large amounts of volatility month to month, which can cause unwanted distortion to the headline figure. Both headline and core results are followed closely by investors, and are also used by economists and central banking figures to set economic growth forecasts and monetary policy.
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