Measuring the so-called devil :Inflation!

Inflation is measured as the percentage rate of change of a price index (measure of average level of prices) over a particular period of time; normally a year. Inflation is measured by change in weighted average of prices of a basket of goods. It is measured by finding out the change in existing price over base year prices:   

        (P₁-P₀)/P₀ x 100

It means that if inflation for a particular week is say 10%, it means the index is 10% higher, than it was in the same week during the previous year.

 Inflation is calculated using the following methods:

1)     Consumer price Index ( CPI)

2)     Whole Sale price Index ( WPI)

3)     Cost of living index

4)     Producer Price index (PPI)

5)     Capital Goods Price Index

6)     Commodity price index

7)     GDP Deflator

 In this article, I shall talk about the two most important price indices in India and they are the Consumer Price Index (CPI) and the Wholesale Price Index (WPI).

Consumer Price Index and Wholesale price index (CPI and WPI)

 

Some countries (like India and The Philippines) use WPI changes as a central measure of inflation. Most of the major developed economies like US, UK, Japan, France, Singapore and even our arch rival China have selected CPI as its official barometer to weigh its inflation.

 WHY WPI IS PREFERRED TO CPI IN INDIA?

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