Inflation: WPI & CPI
Economy Advanced · मुद्रास्फीति: WPI और CPI · 18 facts
Inflation: Sustained increase in the general price level of goods and services; reduces purchasing power of money.
CPI (Consumer Price Index): Measures retail price changes; base year 2012; released monthly by MoSPI; used by RBI for monetary policy decisions.
WPI (Wholesale Price Index): Measures producer/wholesale price changes; base year 2011-12; released monthly by DPIIT (Department for Promotion of Industry and Internal Trade); 697 items.
CPI components and weights: Food and beverages 45.86%, Housing 10.07%, Fuel and Light 6.84%, Clothing 6.53%, Miscellaneous 30.32%.
Core inflation: Excludes food and fuel prices (volatile); reflects persistent inflation; also called underlying inflation; key for monetary policy.
Headline inflation: Includes all items including food and fuel; more volatile; what is commonly reported in news; CPI headline = overall CPI.
Stagflation: Simultaneous occurrence of high inflation AND high unemployment and stagnant growth; worst economic condition; rare but devastating.
Deflation: General decrease in price levels; negative inflation rate; can be harmful — reduces consumption as people delay purchases expecting further price falls.
Disinflation: Decrease in the rate of inflation; prices still rising but more slowly; different from deflation (where prices actually fall).
RBI inflation target: 4% CPI ±2% band (2%-6%); set by Government under Section 45ZA of RBI Act; MPC must explain in writing if target missed for 3 consecutive quarters.
Skewflation: When food price inflation distorts overall CPI even though non-food inflation is controlled; affects India frequently due to high food weight in CPI (45.86%).
Cost-push inflation: Rising input costs (wages, raw materials, oil) push up prices; RBI cannot control through monetary policy effectively.
Demand-pull inflation: Excess demand in economy pulls up prices; RBI can address by raising repo rate (reducing money supply and demand).
Phillips Curve: Inverse relationship between inflation and unemployment; high inflation associated with low unemployment and vice versa; short-run relationship.
Hyperinflation: Inflation exceeds 50% per month; Zimbabwe in 2007-08 had 89.7 sextillion% annually; destroys currency value rapidly.
Base Effect: When comparing year-on-year prices, a low base in previous year inflates current inflation rate; high base deflates it; distorts annual comparison.
India's inflation 2022-23: Remained above 6% upper tolerance band for several months due to global commodity prices, Russia-Ukraine war impact.
Food inflation in India: Driven by supply side factors (monsoon failure, storage losses, supply chain disruption); monetary policy has limited impact on food inflation.