How to Calculate the Inflation Rate in India?
By BYJU'S Exam Prep
Updated on: November 9th, 2023
The inflation rate can be calculated in India with the help of the Consumer Price Index (CPI) and the Wholesale Price Index (WPI). A slow rise in the cost of goods and services is referred to as inflation. A country’s economy is in danger when inflationary pressures are present, but negative inflation, also known as deflation, is a much more serious issue.
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Calculate Inflation in India
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. Price indices are used in India to calculate inflation and deflation by tracking changes in the prices of goods and services.
- The increase in food, fuel, and other good prices is taken into account when calculating the headline inflation rate, also known as headline inflation.
- If consumers spend more of their money on a product, the weight of that product is higher when measuring inflation.
- For example, food and gasoline are weighted more heavily in the calculation of inflation because they are more expensive for households than shaving cream or postcards.
- Inflation is more affected by changes in food or fuel prices.
- High inflation can affect the economy by reducing 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.
Formula for Inflation
Inflation can be measured by using CPI:
- CPI = (Cost of Fixed Basket of Goods and Services in Current Year/Cost of Fixed Basket of Goods and Services in Base Year) *100
- Inflation = ((CPI x+1 – CPIx)/ CPIx))*100
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). Inflation is the term used to describe a gradual increase in the cost of goods and services.
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