Retail Inflation

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    • India’s benchmark inflation rate, measured by the Consumer Price Index (CPI), firmed up to 5.59% year-on-year in December 2021, data released by the Ministry of Statistics and Programme Implementation showed.

    About

    • With this, the CPI has remained within the RBI’s tolerance level for the sixth consecutive month.
    • According to the Monetary Policy Committee’s official mandate, the rate-setting panel is supposed to keep inflation in a band of 2-6%, with the medium-term target being 4%.

    CPI-based Inflation

    • Retail prices of goods and services: When we talk about the rate of inflation, it often refers to the rate of inflation based on the consumer price index (CPI).
      • The CPI tracks the change in retail prices of goods and services which households purchase for their daily consumption.
    • To measure inflation: we estimate how much CPI has increased in terms of percentage change over the same period the previous year.
      • If prices have fallen, it is known as deflation (negative inflation).
      • The Central Bank (RBI) pays very close attention to this figure in its role of maintaining price stability in the economy.
    • CPI also helps understand: the real value of salaries, wages, and pensions, the purchasing power of the nation’s currency, and regulating rates.
    • CPI formula: (Price of basket in current period / Price of basket in base period) x 100

    Difference between WPI and CPI

    • WPI measures the average change in prices of goods at the wholesale level while CPI calculates the average change in prices of goods and services at the retail level.
    • WPI data is published by the Office of Economic Adviser, Ministry of Commerce and Industry, while CPI data is published by the National Statistical Office (NSO), Ministry of Statistics and Programme Implementation (MoSPI).
    • The base year for WPI is 2011-12 while the base year for CPI is 2012.
    • WPI takes into account the change in price of goods only, while CPI takes into account the change in process of both goods and services.

    Source: ET

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