Inflation in India
When the price level rises.Meaning of Inflation
Inflation is nothing but a rise in the level of prices of goods and/or services in an economy over a certain period of time. The inflation rate is a chief measure of price inflation. leading to erosion in the purchasing power of money it is a loss of real value in internal medium of exchange and a unit of account in the economy. It is the annualized percentage change in the general price index (normally Consumer Price Index) over time
. each unit of currency will buy fewer goods and services. consequently.
How to control inflation
• Monetary Measures • Fiscal Measures • Other Measures
• Credit Control • Demonetization of Currency • Issue of New Currency
• • • • • Reduction in Unnecessary Expenditure Increase in Taxes Increase in Savings Surplus Budgets Public Debt
• To Increase Production • Rational Wage Policy • Price Control
.How is inflation calculated in India?
India uses the Wholesale Price Index (WPI) to calculate inflation. Most developed countries use the Consumer Price Index (CPI) to calculate inflation.
or nation). • It is a price index determined by measuring the price of a standard group of goods meant to represent the typical market basket of a typical urban consumer. region. • CPI measures a price change for a constant market basket of goods and services from one period to the next within the same area (city.
. The percent change in the CPI is a measure estimating inflation.Consumer Price Index (CPI)
• CPI is a measure estimating the average price of consumer goods and services purchased by households.
and was one of the economic indicators available to policy makers until it was replaced by most developed countries by the CPI market. However. index in the 1970. In India. a total of 435 commodities data on price level is tracked through WPI which is an indicator of movement in prices of commodities in all trade and transactions. • Wholesale Price Index (WPI) is the index that is used to measure the change in the average price level of goods traded in the wholesale market.Wholesale Price Index (WPI)
• WPI was published in 1902. India and the United States now report a producer price index instead
. • India and Philippines use WPI changes as a central measure of inflation.
They are:Primary Articles (weight of 22. and Lubricants (weight of 14.0253) – 22% Index Fuel.7485) – 64% Index
. Power. The WPI consists of about 435 items and has three broad categories. Light.2262) 14% Index Manufactured Products (weight of 63.Wholesale Price Index (WPI)
• WPI is published on a weekly basis in India.
. Many commodities not consumed by consumers get calculated in the index. Consumers are spending lots of money on services like education and health. And these services are not incorpated in calculation of WPI. • WPI measures general level of price changes either at level of wholesaler or at the producer and does not take into account the retail margins.Problem with WPI
• In present day service sector plays a key role in Indian economy. “But it use to measure the impact on consumers. • WPI is supposed to measure impact of prices on business. Therefore we see here that WPI does give the true picture of inflation.
PI for a certain year .PI for a comparative year PI for a comparative year
CPI is published on a monthly basis.
.• In India.
this will increase imports and reduce exports. • Uncertainty about the future purchasing power of money discourages investment and saving. • There can also be negative impacts to trade from an increased instability in currency exchange prices caused by unpredictable inflation. • Higher income tax rates.Effects of inflation
• They add inefficiencies in the market. • Inflation rate in the economy is higher than rates in other countries. leading to a deficit in the balance of trade. and make it difficult for companies to budget or plan long-term.
05 per cent.
.Rate of inflation
The prices of everything goes up over time and this phenomenon is called inflation. diesel and cooking gas. By how much do the prices go up is call inflation rate Inflation has registered a 13-year high of 11. It is the direct result of rise in the prices of petrol.