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Indian Economy

Inflation in India

  • 04 Jun 2019
  • 2 min read

Recently, Consumer Price Index: Industrial Labour (CPI:IW) was released by the Ministry of Labour & Employment.

Measurement of Inflation in India

  • Wholesale Price Index WPI
    • It is the most widely used inflation indicator in India.
    • Published by the Office of Economic Adviser, Ministry of Commerce and Industry.
    • All transactions at the first point of bulk sale in the domestic market are included.
    • Major criticism for this index is that the general public does not buy products at wholesale price.
    • The base year of All-India WPI has been revised from 2004-05 to 2011-12 in 2017.
  • Consumer Price Index CPI
    • It measures price changes from the perspective of a retail buyer.
    • It measures changes over time in the level of retail prices of selected goods and services on which consumers of a defined group spend their incomes.
    • Four types of CPI are as follows:
      • CPI for Industrial Workers (IW).
      • CPI for Agricultural Labourer (AL).
      • CPI for Rural Labourer (RL).
      • 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 Central Statistical Organisation (CSO) in the Ministry of Statistics and Programme Implementation.
    • Base Year for CPI is 2012.

CPI vs. WPI

  • WPI, tracks inflation at the producer level and CPI captures changes in prices levels at the consumer level.
  • Both baskets measure inflationary trends (the movement of price signals) within the broader economy, the two indices differ in which weightages are assigned to food, fuel and manufactured items.
  • WPI does not capture changes in the prices of services, which CPI does.
  • In April 2014, the RBI had adopted the CPI as its key measure of inflation.
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