Inflation decoded


Inflation is defined as a general increase in prices and fall in the purchasing value of money.

Until recently, India relied on the Wholesale Price Index to measure inflation. In January 2011, it began publishing the Consumer Price Index, after it was observed that the WPI did not accurately capture the price movement of products for consumers. To construct a WPI, prices are collected from mandis; for CPI, prices are collected from retail outlets. The ‘basket’ is constructed based on consumption patterns drawn from surveys. After this list of regularly purchased items is drawn up, the ‘weight’ of each item is calculated. Surveys are then conducted to collect prevailing prices, after which a ratio is calculated using prices in 2011-12 as the base. This data is then aggregated. The main components of inflation have been the prices of pulses, vegetables, milk and eggs.


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