How to Measure Inflation in India?
By BYJU'S Exam Prep
Updated on: November 9th, 2023
The two main indices used to measure inflation in India are the WPI (Wholesale Price Index) and CPI (Consumer Price Index). The cost of a representative basket of wholesale goods is the wholesale price index. A consumer price index measures a market basket of goods and services that households have purchased at a weighted average price.
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Inflation Measurement in India
Inflation is the process by which the cost of goods and services rises while the value of money gradually declines. Consumer Price Index (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.
- It 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.
Inflation Formula
Inflation = ((CPI x+1 – CPIx)/ CPIx))*100
Importance of WPI
In a dynamic environment, costs change over time. The movement of the Wholesale Price Index (WPI), a crucial measure of how quickly prices change, is used to calculate the inflation rate.
- The government, banks, industry, and business circles frequently use WPI because it accurately depicts price fluctuations.
- Variations in the WPI are frequently linked to significant changes in monetary and fiscal policy.
- Similarly to this, the Indian government’s trade, fiscal, and other economic policies are influenced by the movement of the WPI.
Summary:
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 a gradual decline in the value of money is called inflation.
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