What is Consumer Price Index?

CPI or Consumer Price Index is the measure of the monthly changes in the prices of the goods and services, paid by the consumer over a period of time. It is calculated by the Bureau of Labor Statistics, BLS.

Which year is the base year of the CPI?

The base year for Consumer Price Index is 2012 . The index number is taken for the base year, i.e., 2012 is 100 for Consumer Price Index.

How is the Consumer Price Index used?

CPI is mostly used by the participants of the financial market in order to gauge inflation. Along with it, the Federal reserve uses Consumer Price Index to calibrate the monetary policy. And consumers and businesses use the Consumer Power Index to make informed economy-related decisions.

What does Consumer Price Index inflation mean?

The Consumer Price Index, as it is generally called, is an index measuring retail inflation in the economy. This is done by analyzing the change in prices of the most common goods and services.

What is the formula to calculate Consumer Price Index [CPI]?

To find the Consumer Price Index in any period, divide the cost of the market basket in that period by the cost of the same market basket in the base period multiplied by 100.

What is the importance of Consumer Price Index?

CPI is one of the important aspects of economic metrics as it calculates the change in the prices of the goods and services paid by the consumer over a period of time. It helps to judge the direction of the economy and inflation.

What is Consumer Price Index of India?

From 2011 to 2023, India’s Consumption Price Index (CPI) averaged 131.39 points , with a record high of 176.70 points in October 2022 and a record low of 86.81 points in February 2011.

What are the 8 categories of the CPI?

All expenditure items have been categorized by the BLS into more than 200 categories, which are organized into eight broad groups (food and beverages, education and communication, medical care, recreation, housing, apparel, transportation, and other goods and services).

Who published Consumer Price Index in India?

The Consumer Price Index in India is released by the National Statistical Office (NSO) . The data is compiled by the Labour Bureau .

How is CPI measured in India?

The benchmark base year is used to construct the Consumer Price Index (CPI). The base year is periodically modified and is under the supervision of the Central Statistical Office (CSO) and the Ministry of Statistics and Programme Implementation.

What happens when CPI increases?

If the CPI increases, it indicates that the average rate of change in price over time has increased. Over time, this results in modifications to the expenses associated with living and income. Indexation is the name given to this procedure.

What is difference between inflation and CPI?

While the CPI tracks changes in prices, cost-of-living inflation tracks shifts in what people must spend to maintain a particular quality of living.

What is CPI calculated by?

The CPI is derived from a monthly sample of 80,000 prices collected by the Bureau of Labor Statistics . To determine the overall change in prices, the index for each good or service is weighted according to its share of recent consumer spending.

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Consumer Price Index (CPI): Types, Full Form, Formula | CPI UPSC Notes

By Balaji

Updated on: February 26th, 2023

Consumer Price Index, or CPI, as it is generally called, is an index measuring retail inflation in the economy, done by analyzing the price change of the most common goods and services. The Consumer Price Index is designed to assess the changes over time in the general level of retail prices of certain household goods and services purchased for consumption.

These changes affect the real purchasing power of consumers’ wealth and income. Traditionally, CPI was used to measure changes in the living costs of workers. This was done to compensate their wages for the fluctuating price levels. You will learn all the details about the Consumer Price Index, relevant to the UPSC Exam, in the article below.

Table of content

1. CPI – Consumer Price Index
2. Types of CPI
3. Working Process of Consumer Price Index in India
4. Advantages of CPI
5. Calculation of Consumer Price Index
6. CPI Formula
7. CPI UPSC
8. Consumer Price Index UPSC Questions

CPI – Consumer Price Index

CPI is the measuring index of the changes in the price level of consumer goods and services bought out by households. The Consumer Price Index is the estimated calculation in numerical values using the rates of the representative sample objects gathered periodically.

The Consumer Price index notes the changes in the prices at the consumer level. In contrast, the Wholesale Price Index (WPI), calculates price changes at the producer level. The WPI cannot note the price change in the service provided, but the CPI can capture this change.

Types of CPI

In India, CPI is calculated in four ways:

CPI for Industrial Workers (CPI-IW)– The CPI-IW measures the price change in the fixed baskets of the consumed goods and services used by the workers of the Industries.
CPI for Urban Non-Manual Employees (CPI-UNME)– The data is compiled by the National Statistical Office (previously called Central Statistic Office).
CPI for Agricultural Labourers (CPI-AL)– The data is revised to calculate the minimum wages for the laborers in the agricultural sector living in different states.
CPI for Rural Labourers (CPI-RL)– Labour Bureau compiles the CPI-AL.

The work of the Ministry of Statistics and Program Implementation is to collect Consumer Price Index data and compile it similarly; the work of the Labour Bureau in the Ministry of Labour is to collect the remaining three CPI data.

Working Process of Consumer Price Index in India

The Consumer Price Index in India measures price changes by comparing the cost of a fixed set of commodities over time. The set is based on the expenses of a target population over a reference period. Since the set contains commodities of constant or identical quality and quantity, the index reflects only the pure price.

CPI UPSC Notes

The price data of goods and services are collected periodically, and the inflation levels in the economy are calculated by using the data collected from the CPI. This is further used to compute the cost of living. Not only this, but the Consumer Price Index also provides insights into how much a consumer can spend to be on par with the price change in an economy.

Advantages of CPI

Over the years, CPIs have been commonly used as a macroeconomic indicator of inflation and a tool by the Central Bank and the Government to monitor price stability and target inflation. Hence, Consumer Price Index is considered one of the key economic indicators. The RBI and other agencies study CPI to interpret the price change of various commodities and keep a check on inflation.

The Consumer Price Index is also useful for understanding the true value of salaries, wages, pensions, and the currency’s purchasing power and regulating prices.

Calculation of Consumer Price Index

The CPI is calculated regarding a base year, which is used as a benchmark. The price Reference Year (Base Year) has been selected as the calendar year 2012. The price change pertains to that year.

When the Consumer Price Index is calculated, the price of the set in 1 year is divided by the price of the market set of the base year; then, it is multiplied by 100.

CPI Formula

The annual percentage change of CPI is also used to evaluate inflation. In India, the base years of the current series of CPI(RL), CPI(IW), and CPI(AL) are 1984-85, 1982, and 1986-87, respectively.

CPI = (Cost of the market basket in the year/Price of the market basket in the base year) x 100

CPI is calculated for a fixed set of items, including food, apparel, housing, electronics, transportation, medical care, education, etc. India’s Consumer Price Index increased from 175.70 points in December 2022 to 176.50 points in January 2023.

CPI UPSC

The Consumer Price Index is a crucial topic in the Indian Economy section of the UPSC Syllabus. To get in-depth knowledge about this concept, one should refer to the Indian Economy Books.

Students can even take help from UPSC Previous Years’ Question Papers to get references for the questions asked on the topic of CPI.

Consumer Price Index UPSC Questions

Question: What does the consumer price index (CPI) calculate?

Price of services only
Price of goods only
Price of both goods and services
None of the above

Answer: Option C

Question: Who issues the data of the consumer price index (CPI)?

Ministry of Commerce and Industry
Ministry of Finance
Ministry of Statistics and Program Implementation
None of the above