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Headline inflation and Core inflation are two concepts which are very similar to the above situation. While Headline inflation judges the increase in prices over a year of a basket of goods, this basket contains products which are like Sam i.e. volatile in terms of their individual prices. So to get a better understanding of inflation, just as John removed Sam for the purpose of calculating team’s performance, similarly, volatile products are removed from the basket that determines Headline Inflation. And once these volatile products are removed, the remaining products give a better estimate of the overall inflation trend in the country. This is known as Core Inflation. Crude oil is one such product which displays price swings based on global economic conditions that are beyond the control of local policymakers.
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