How to calculate the inflation rate in India?

By Ritesh|Updated : September 2nd, 2022

The inflation rate (CPI) can be calculated in India with the help of the Consumer Price Index (CPI) and the Wholesale Price Index (WPI). Inflation is a gradual increase in the prices of services and goods.

  • Inflationary pressures indicate that a country's economy is at risk, but negative inflation, often called deflation, is a much more severe problem.
  • A level of inflation that is neither too hot nor too cold is needed to encourage spending among businesses and consumers and establish a baseline for economic growth.

Steps to Calculate Inflation Rate In India

  • In India, price indices are used to determine changes in the rates of commodities and services, thus calculating inflation or deflation.
  • The headline inflation rate, commonly known as headline inflation, is calculated by considering food prices, fuel, and other goods increases.
  • While measuring inflation, the weight of a product is higher if customers spend more of their money on it.
  • Food and gasoline, for example, are costlier for households than shaving cream or postcards and are weighted more heavily in calculating inflation.
  • A difference in the price of food or fuel has a greater effect on inflation.
  • High inflation can affect the economy by reducing the purchasing power; low inflation can also hamper growth by holding too much money in savings accounts as consumers delay spending and wait for their dollars to rise.
  • An optimal inflation rate encourages people to spend now rather than save later, resulting in proper economic development.

Summary:

How to calculate the inflation rate in India?

The inflation rate (CPI) in India is calculated using the Consumer Price Index (CPI) and the Wholesale Price Index (WPI).

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