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CPI based inflation

In March this year, inflation in the US peaked at 8.5%. The highest in the last 40 years before scaling down a bit. Several other countries, too, are reeling under high inflation. And some of them, like Sri Lanka, is on the brink of economic collapse. India, too, has not remained untouched and is led by rising food and energy prices. As measured by the Consumer Price Index (CPI), the country’s retail inflation rate jumped to a near eight-year high in April. According to data released by the Ministry of Statistics and Programme Implementation, 7.9%. The annual retail inflation was the highest in 95 months in April. The last time the inflation print was higher than this was in May 2014, when the figure stood at 8.33%.

CPI numbers were initially introduced to provide a measure of changes in the living costs of workers.

CPI numbers were initially introduced to provide a measure of changes in the living costs of workers. So that their wages were in tune with the changing prices, however, it has been widely used as a macroeconomic indicator of inflation over the years. And also as a tool by the government and the central bank for targeting inflation and monitoring price stability. CPI is also used as a deflator in national accounts. It is released at 5:30 pm on the 12th of every month for numbers relating to the previous month. Inflation measures change the average price of services and commodities at regular intervals. It indicates a decrease in the purchasing power of a unit of a nation’s currency as the products and services get more expensive.

CPI is an indicator of inflation. It measures the percentage change in the price of a basket of goods and services consumed by households. Similarly, the Wholesale Price Index (WPI) measures changes at the wholesale price levels. To measure inflation, we estimate how much CPI has increased in percentage change over the same period the previous year. If prices have fallen, it is known as deflation. Economists believe that low, stable, and predictable inflation is suitable for an economy. The government has mandated the RBI to maintain retail inflation at 4%, with a margin of 2% on either side. And the central bank is answerable to the policymakers if it misses its target for three consecutive quarters.

By Ram

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