Inflation vs Growth

Subject: Economy

Context:

 RBI is facing two conundrums:

• Inflation is spiking even though growth is faltering. GDP growth rate is likely to be negative this year in comparison to the last financial year. Yet, retail inflation continues to stay above the 6% mark.
• Within inflation, retail and wholesale inflation are charting fairly divergent paths

Concept:

Core inflation

• An inflation measure which excludes transitory or temporary price volatility as in the case of some commodities such as food items, energy products is called core inflation

Headline inflation

• The headline inflation measure demonstrates overall inflation in the economy.

CPI

• Consumer Price Index or CPI is the measure of changes in the price level of a basket of consumer goods and services bought by households.
• Central Statistics Office (CSO), Ministry of Statistics and Program Implementation releases Consumer Price Indices (CPI).

WPI

• Wholesale Price Index, or WPI, measures the changes in the prices of goods sold and traded in bulk by wholesale businesses to other businesses
• The numbers are released by the Economic Advisor in the Ministry of Commerce and Industry.

CPI VS WPI

• While WPI keeps track of the wholesale price of goods, the CPI measures the average price that households pay for a basket of different goods and services.
• Even as the WPI is used as a key measure of inflation in some economies, the RBI no longer uses it for policy purposes, including setting repo rates. The central bank currently uses CPI or retail inflation as a key measure of inflation to set the monetary and credit policy.