Measures of Inflation in India
Consumer Price Index, sometimes called CPI, is a measure of changes in the price level of a basket of products and services that households purchase.
- A numerical estimate called the CPI is created by employing a sample of typical items whose prices are routinely collected.
- The CPI records alterations in consumer price levels.
The Wholesale Price Index keeps track of price changes at the producer level (WPI). It aids in evaluating both the macroeconomic and microeconomic aspects of an economy.
- While the WPI cannot measure changes in service pricing, the CPI can.
- WPI is the cost of a selection of wholesale items.
- WPI concentrates on the cost of commodities that are exchanged between businesses. It does not focus on consumer-purchased items.
- Monitoring price drifts representing supply and demand in manufacturing, construction, and industry is the primary goal of WPI.
The importance of WPI:
- In a dynamic world, prices fluctuate over time.
- The inflation rate, a key indicator of how quickly prices change, is calculated using the Wholesale Price Index (WPI) movement.
- Because it properly represents price fluctuations, WPI is frequently used by the government, banks, industry, and business circles.
- WPI fluctuations are frequently associated with significant monetary and fiscal policy shifts.
- Similarly, the movement of WPI influences how the Indian government formulates its trade, fiscal, and other economic policies.
How to measure inflation in India?
WPI (Wholesale Price Index) and CPI (Consumer Price Index) are two primary indices used to measure inflation in India. A situation wherein the prices of goods and services are increased with gradual decline in the value of money is called inflation.