The Reserve Bank of India’s (RBI) legal target is 4%, in a band of 2-6%, in terms of the headline inflation rate as measured by the Consumer Price Index (CPI). But comments last week, when it left the policy repo rate unchanged at 5.25%, are making experts believe it is actually targeting core inflation – specifically, inflation minus food, fuel, and precious metals.As per the latest data, headline CPI inflation in June rose to 4.38% from 3.93% in May, with core inflation unchanged at 3.9%. Core inflation excluding precious metals stood at 2.5%.This would not be the first time economists think the RBI’s Monetary Policy Committee is focusing more on underlying price pressures than the headline number. However, there is a certain lack of clarity that has left economists scratching their proverbial heads.The purpose of excluding certain items such as food and fuel – whose prices can be rather volatile – is to understand how consumption demand is behaving in the economy. Households may not drastically change their consumption of food and fuel just because prices rise or fall – people can’t give up eating and necessary travel. This is why focusing on the other items – demand for whom is discretionary in nature and reacts to price movements – can provide more useful information. With gold and silver inflation sky high, they are also excluded to arrive at a narrower gauge of core inflation, often called ‘core core’ or ‘super core’ inflation – or just core inflation excluding precious metals.Also Read | RBI policy panel likely to keep interest rates unchanged on August 5 amid oil, inflation risksQuestions about inflation targetAccording to the MPC, core inflation excluding precious metals “continues to be benign” and is “likely to align with core inflation towards the end of the financial year”. Essentially, core inflation excluding precious metals is seen rising fairly sharply from 2.5% to around 4% by the end of 2026-27.The MPC’s statement also said any policy action warranted more clarity on inflation and its drivers, and this action would have to consider “the need for recalibration of policy rates in line with the evolving growth-inflation dynamics, especially the normalisation of the underlying inflation from its benign levels seen hitherto”.According to economists from ICICI Securities Primary Dealership (I-SEC PD), led by A Prasanna, the RBI’s statements taken together suggest the central bank has “zeroed in on core ex precious metals as the lodestar for monetary policy”.Story continues below this adCalling this communication “somewhat confusing”, I-SEC PD said in a note last week that the comments reveal that the RBI may consider policy recalibration – interpreted to mean interest rate hikes – once the two measures of core inflation converge.Prasanna and co are concerned by the language for more reasons than one, first among them being that to suggest the RBI is going to ignore above-target headline inflation – it expects it to average 4.7% in July-September, 5.9% in October-December, 5.5% in January-March 2027, and 5.3% in April-June 2027 – “raises question marks about the inflation target itself”.Also Read | Central government’s capex surges 66% in June, subsidy bill also jumpsIs core inflation benign?Another question is whether core inflation excluding precious metals is indeed benign.“Unlike the RBI, we see early signs that price pressures are spreading beyond food and fuel,” said ANZ economists Dhiraj Nim and Sanjay Mathur. According to them, although core inflation excluding precious metals was only 2.5% in June, the month-on-month momentum in prices was “firm, with annualised inflation in this sub-basket already running at 4-4.4%”.Story continues below this ad“Rising inflation expectations, elevated global commodity prices and resilient domestic demand suggest underlying inflation could build faster than the RBI currently anticipates,” they added.Item-level data from the CPI basket indicates broadening of price pressures.The CPI basket contains 358 items. In February, 236 of them saw higher prices compared to the previous month. This number rose to 286 in March, 282 in April, 302 in May, and 317 in June. Data for July will be released on Wednesday.Decision first, reasons later?I-Sec PD is not alone in thinking the RBI may be targeting core inflation. In an interview to The Indian Express, Murthy Nagarajan, Head of Fixed Income at Tata Asset Management, said the general view is the RBI is looking at core inflation and core inflation excluding precious metals, which is “slightly confusing for the market”.Story continues below this ad“I think the RBI has taken a call that it’ll be prudent to do it (raise interest rates) after six months. They have first decided they don’t want to hike rates and then looked at the (reasons),” Nagarajan said.It is precisely because of this core inflation focus that the RBI is being viewed as unexpectedly dovish, with Nomura economists expecting a recalibration of policy rates “primarily if there are signs of higher underlying inflation”. They don’t expect a rate hike this year.