[Solved] Which of the following is a limitation of using core inflation as a measure for monetary policy? — Ans: It ignores short-term price shocks that affect consumers directly | Economic Awareness

Economic Awareness - Sectors of Indian Economy

Which of the following is a limitation of using core inflation as a measure for monetary policy?

AIt includes volatile food and fuel prices causing instability

BIt ignores short-term price shocks that affect consumers directly

CIt is based solely on wholesale prices, not retail prices

DIt does not reflect any inflation trends

Step-by-Step Solution

Step 1: Understand core inflation's purpose and limitations
Core inflation excludes volatile items to show underlying trends but may miss short-term shocks.
Step 2: Identify limitation
Ignoring short-term price shocks like food and fuel price spikes can affect consumers directly.
Step 3: Analyze incorrect options
Including volatile prices is false; core inflation excludes them. It is based on CPI, not just wholesale prices. It does reflect inflation trends.
Final Answer:
It ignores short-term price shocks that affect consumers directly → Option B
Quick Check:
Core inflation limitation = ignores short-term shocks ✅

Quick Trick: Core inflation misses short-term consumer price shocks.

Common Mistakes:

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