INFLATION

INFLATION

TOPIC: Economy

Context- Retail inflation based on CPI hit a seven-month high topping 6 per cent in January. In contrast, producers’ inflation, based on WPI, dropped to 12.96 per cent in January.

Concept-

Inflation:

• Inflation refers to the rise in the prices of most goods and services of daily or common use, such as food, clothing, housing, recreation, transport, consumer goods, etc.
• Inflation measures the average price change in a basket of commodities and services over time.
• Inflation is indicative of the decrease in the purchasing power of a unit of a country’s currency.
• In India, inflation is primarily measured by two main indices —WPI & CPI which measure wholesale and retail-level price changes, respectively.

Retail inflation:

• According to National Statistical Office (NSO) data, a key reason for the higher CPI was the ‘food and beverage inflation’.
• The Monetary Policy Committee (MPC) uses CPI data to control inflation. In April 2014, the Reserve Bank of India (RBI) had adopted the CPI as its key measure of inflation.
• Consumer Price Index:
  • It measures price changes from the perspective of a retail buyer.
  • The CPI calculates the difference in the price of commodities and services such as food, medical care, education, electronics etc, which Indian consumers buy for use.
  • Four types of CPI are as follows:
    1. CPI for Industrial Workers (IW).
    2. CPI for Agricultural Labourer (AL).
    3. CPI for Rural Labourer (RL).
    4. CPI (Rural/Urban/Combined).

• • Of these, the first three are compiled by the Labour Bureau in the Ministry of Labour and Employment. Fourth is compiled by the NSO in the Ministry of Statistics and Programme Implementation.
  • Base Year for CPI is 2012.

Wholesale inflation: Calculated using Wholesale Price Index.

• It measures the changes in the prices of goods sold and traded in bulk by wholesale businesses to other businesses.
• Published by the Office of Economic Adviser, Ministry of Commerce and Industry.
• It is the most widely used inflation indicator in India.
• The base year of All-India WPI has been revised from 2004-05 to 2011-12 in 2017.
• WPI does not capture changes in the prices of services, which CPI does.