COMPUTATION OF

INFLATION
DEFINATION

 Inflation is the increase in the prices of goods and services over time
.

CAUSES OF INFLATION:
 Demand pull inflation: Aggregate of demand is more than aggregate of supply.
 Cost push inflation: Higher oil prices feeding through higher cost.
 Devaluation: Increase cost of imported goods ,also boost to domestic demand.
CONSUMER PRICE INDEX(CPI)

 A consumer price index measures changes in the price level of

weighted average market basket of consumer goods and services
purchased by households.
 It is usually calculated and reported by the Bureau of Economic
Analysis and Statistics of a country on monthly and annual basis.
 The current CPI rate is 256.759
COST OF LIVING

 Cost of living is the amount of money needed to sustain a certain standard of

living by affording basic expenses such as house holding ,food ,taxes and
health care.
 The cost of living is often used to compare how expensive is to live in one
city verses another.
 One would need around 90,000rs to survive in bangalore to maintain the
same standard of life one can have 1,00,000 in delhi (including rent and tax).
 This calculation uses cost of living index to compare cost of living
 Cost of living index measures relative cost of living over time or region.
COMMODITIES USED IN CPI

1.Food and beverages 13.sweets

2.Cereals 14.tobacco
3.Meat and fish 15.clothing
4.Egg 16.footwear
5.Milk products 17.housing
6.Oil 18.fuel and light
7.Fruits and vegetables 19.health
8.Pulses 20.transport and communication
9.Sugar
10.education
11.Spices
12.Non alcoholic beverages
Formulae to find CPI

CPI=
(cost of basket in current period /cost of basket in base period)*100
Ex: cost of onion in current period=70
cost of onion in base period=50
CPI=( RS 70)/(RS 50)*100 =140
The CPI Is 40 percent higher in current period than in base period.
WHOLESALE PRICE INDEX

 A wholesale price index(WPI) Is an index that measures and tracks the changes in
the price of goods in the stages before the retail level that is, goods that are sold in
bulk and traded between entities or business instead of consumer.
 WPI is calculated based on base year and 435 commodities and their price change
is used for calculation.
 Ex :base year 1975 wheat price=5.75
current year 1980 wheat price=6.10
(6.10-5.75)/5.75*100=6.09
WPI for base year is assumed to be 100, WPI of 1980 will become 100+6.09=106.09