Introduction To Price Trends And Inflation In India
Price stability is an essential condition for stability in economic life as well as economic growth. Fluctuations in prices, on the contrary, create an atmosphere of uncertainty which is not conducive to development activity.
Since the beginning of the mid-1950s, prices have continuously risen in India. The rate of price rise, of course, has not been the same throughout the period. Price stability is viewed as a necessary condition to ensure the desired development performance of the economy.
In an attempt to explain price trends and inflation in India, we shall focus our attention on the following issues:
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Wholesale Price Index:
The Government of India revised the base year of Wholesale Price Index (WPI) from 2004-05 to 2011-12 from April 2017. WPI inflation measures the average change in the prices of commodities for bulk sale at the level of early stage of transactions. The basket of the WPI covers commodities falling under three major groups, namely primary articles, fuel and power, and manufactured products.
The weights assigned for the three groups are as follows: primary articles 22.62 per cent, fuel and power 13.15 per cent, and manufactured products 64.23 per cent. As compared to the earlier series (base year 2004-05=100), the new series with base year 2011-12=100 has more items (697 as compared with 676 in the earlier series) and is more representative in nature, drawing on 8,331 quotations as against 5,482 in the earlier series.
Price Trends And Inflation
Headline Inflation and Core Inflation
Headline inflation is a measure of the total inflation within an economy, including such as food and energy prices, which tend to be much volatile and prone to inflationary spikes. On the other hand, core inflation does not take into account commodities that have volatile prices, for example, food and fuel. It follows that supply shocks that arise from a poor crop yield or hikes in international prices of fuel will lead to increase in headline inflation.
However, core inflation will not be affected by these shocks. Thus, it serves as an indicator of the price levels of commodities that have relatively non-volatile price. This shows that core inflation represents the long-run trend in the price level.
Price Trends And Inflation
Consumer Price Index:
Consumer Price Index (CPI) reflects the cost of living for a homogeneous group of consumers. The commodity basket for the CPI is derived from group-specific consumer expenditure surveys and weights for each commodity are proportionate to their expenditure. There are four consumer price indices in India: the CPI for industrial workers (CPI-IW), CPI for agricultural labour (CPI-AL), CPI for rural labour (CPI -RL) and CPI (urban+rural) combined. The new monthly CPI (combined), with base 2012 = 100, is now taken as the measure of headline inflation and is tracked by the RBI to anchor its monetary policy.
As far as CPI (combined) is concerned, Economic Survey 2017-18 presents information on: (a) CPI headline inflation, (b). CPI core inflation (i.e., CPI excluding food and fuel group) and (c) CPI refined core inflation which is presented in two forms: (x) CPI excluding food and fuel group, petrol and diesel; and (y) CPI excluding food, fuel group, petrol, diesel and housing group.
Price Trends And Inflation
The National Statistical Office (NSO), Ministry of Statistics and Program Implementation (MoSPI) is releasing All India Consumer Price Index (CPI) on Base year 2012=100 and corresponding Consumer Food Price Index (CFPI) for Rural, Urban and Combined for the month of November. Consumer Price Index for month of November 2023 accordingly Ministry of Statistics and Programme Implementation is 5.55% (combined). Index of Industrial Production (IIP) growth rate, Oct. 2023 is 11.7%, Gross Domestic Product (GDP), Q2 2023-24 is 7.6% and Urban Unemployment Rate, July-Sept. 2023 is 6.6%.
Price Trends And Inflation