Headline inflation reflects prices of all the tradeables within an economy including those commodities or items that experience sudden inflationary spikes such as food or energy. On the other hand, Core Inflation is a measure which excludes transitory or temporary price volatility as in the case of some commodities such as food items, energy products etc.
Since headline inflation includes everything, it may not present an accurate picture of the current state of the economy. On the other hand, the core inflation shows long term trends and is focused by Central Banks because it reflects the demand side pressure in the economy. It is also used as tool for framing long-term policy. In recent years, due to these reasons, RBI has inclined from headline to core inflation which shows a more correct trend in inflation.
