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.
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).