2. Meaning!!!
General rise in the price level
Fall in the purchasing power of money
Too much money chasing too few goods
It becomes harmful once it goes out of control
It occurs under the volume of money increases
faster than the available supply of goods
3. Types of Inflation - Causes
Demand pull Inflation:
Aggregate demand > Aggregate supply of
goods and services
Prices of goods and services rise.
Cost push inflation:
Cost of production Rise in the prices of
factors of production
Prices of goods and services
4. How is it Measured?
Consumer Price Index
Wholesale Price Index
5. CPI - Consumer Price Index
It measures changes in the price level of consumer
goods and services purchased by households.
Price of goods bought by consumers
It tracks the prices of a specified basket of consumer
goods and services, providing a measure of inflation.
COST OF LIVING INDEX
This actually measures the increase in price that a
consumer will ultimately have to pay for
Countries:
USA , China, Australia, etc.
6. Wholesale Price Index (WPI)
WPI was first published in 1902
Replaced by most developed countries by the CPI in the 1970s
WPI is the index that is used to measure the change in
the average price level of goods traded in wholesale
market.
It focuses on the price of goods traded between
corporations
Countries: India, Philippines
7. Composition of WPI(in India)
Weight = 100%
1. Primary articles (wt.=20.12%)
- Cereals, pulses, Fruits and vegetables, egg, oil etc.
2. Fuel power, Light and Lubricants (wt.=14.91%)
Mineral Oil, Electricity, Coal Mining
3. Manufactured Products (wt. = 64.57%)
Sugar, edible oils, textiles, chemicals, iron & steel,
machinery, transport equipment, etc
8. Basis & Facts
Base Year: 2004-05
Data Release: Monthly basis
No. of commodities: 674
Current Inflation rate: 6.55% (Jan 12)
2-year low
10. CPI – India
India’s first ever annual inflation rate, based on the
consumer price index (CPI)
Rate -7.65%, January 2012
Rural retail inflation - 7.38%
Urban inflation rate - 8.25%
Consumer Price Index (CPI) - Introduced a year ago
Exist alongside the prevailing Wholesale Price Index
(WPI)
11. CPI Major Groups
CPI data tracks retail prices in five major Groups
Food, beverages and tobacco;
Fuel and light;
Housing;
Clothing, bedding and footwear
Miscellaneous
The CPI also reflects price movements in the
services sector (55%)
Base Year: 2010
12. CPI Facts
CPI which took into account the consumption
patterns of all segments of the population.
CPI is 1% higher than the Wholesale Prices
Index.
Help the Reserve Bank take effective
monetary policy steps to deal with inflation
13. CPI Index Preparation
Prepared by the Ministry of Labour.
CPI will be in addition to the three retail price
indices:
Agricultural laborers
Rural laborers
Industrial workers
New CPI - Ministry of Statistics and Program
Implementation (MOSPI)
Eventually expected to replace the Wholesale Price
Index (WPI) as the benchmark inflation.
14. Impact of Inflation
Rising food prices
Commodity prices
Essential goods' prices
Expensive borrowing
Impact on stock markets
The rich get richer and poor get poorer
Loss to fixed income earners
Loss to wage earners
Economic growth