Inflation Measurement

In Context 

Inflation based on the Consumer Price Index (CPI) quickened to 6.07% in February from 6.01% in the previous month .

• Meanwhile, the Wholesale Price Index (WPI)-based inflation accelerated to 13.11% in February from 12.96% in the previous month.

About Inflation 

• Inflation refers to the rise in the prices of most goods and services of daily or common use, such as food, clothing, housing, recreation, transport, consumer staples, etc. 
  • Inflation measures the average price change in a basket of commodities and services over time. The opposite and rare fall in the price index of this basket of items is called ‘deflation’. Inflation is indicative of the decrease in the purchasing power of a unit of a country’s currency. This is measured in percentage.
• Any inflation rate essentially tells us the rate at which prices have been rising in an economy. 

How is Inflation measured?

• In India, inflation is primarily measured by two main indices — WPI (Wholesale Price Index) and CPI (Consumer Price Index), which measure wholesale and retail-level price changes, respectively. 

What are WPI and CPI inflation rates?

• Consumer Price Index (CPI)

• It is an index measuring retail inflation in the economy by collecting the change in prices of most common goods and services used by consumers.
• CPI is also called a market basket, it is calculated for a fixed list of items including food, housing, apparel, transportation, electronics, medical care, education, etc.

• The base Year for CPI is 2012.
• Types: In India, there are four consumer price index numbers, which are calculated, and these are as follows:

• CPI for Industrial Workers (IW)
• CPI for Agricultural Labourers (AL)
• CPI for Rural Labourers (RL) and
• CPI (Rural/Urban/Combined).

• Of these, the first three are compiled by the Labour Bureau in the Ministry of Labour and Employment. Fourth is compiled by the National Statistical Office (NSO) in the Ministry of Statistics and Programme Implementation.

• the Wholesale Price Index(WPI)
  • The new series of Wholesale Price Index(WPI) with base 2011-12 is effective from April 2017. 
  • WPI captures the average movement of wholesale prices of goods and is primarily used as a GDP deflator. 
  • WPI(2011-12) reckons only basic prices and does not include taxes, rebate/trade discounts, transport and other charges.
  • WPI-based inflation data is put together by the Department for Promotion of Industry and Internal Trade (or DPIIT).

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.
• 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:IE