Inflation is a term that refers to a drop in purchasing power because of a rise in prices over a certain period of time. Let’s see more in detail about the change in reporting of inflation. 

Even though the improvements were made over the past two decades, the Consumer Price Index(CPI) still overstates the annual rate of Inflation by about 0.85% points. For the past 40 years, Consumer prices are increasing at the fastest clip climbing at a rate of 8.3%. 

Calculating Inflation 

To understand how inflation is calculated. This formula is used for calculating Inflation for a single item. 

 Inflation= Price(Year 2) – Price(Year 1) X 100/ Price(Year 1) 

Many developing countries use changes in the consumer price index(CPI) as their central measure of India. It is declared the new standard for measuring inflation. Consumer price index numbers are typically measured monthly. India uses changes in the CPI to measure its rate of inflation. 

How Inflation is measured? 

The most commonly used Inflation indexes are the Wholesale Price Index(WPI) and the Consumer Price Index. The WPI measures and tracks the changes in the price of goods before they reach consumers. It is a measure of the average change in the price of goods at a wholesale level.

The CPI is another measure that calculates the price changes of goods and services and examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care. 

Average Inflation Rate in India.

India’s retail inflation is measured by the Consumer Price Index and it accelerated to a five-month high of 7.41% in September 2022. The Whole Sale Price Index-based Inflation decreased to 10.7% from 12.41% during the period. If we compare the Inflation to 10 years back that is September 2012, CPI decreased by 2.32% and WPI is up 2.89%. 

The Reserve Bank Of India has maintained the retail inflation projection at 6.7% and the real GDP growth projection at 7% for the same period. The Average Inflation in India is 7.5% per year. During the period of 1960-2021, it was 7.5%. For example, in the 1960s if the item costs 100rupees, now the rate would be 7,804.85 rupees. 

That’s how inflation changed in the country. It is important to categorize the financial goals into long-term, mid-term, and short terms and plan the savings. By increasing the amount of your savings as per the growth in income.

Also Read

• What is the Role Of Five Year Plans In the Indian Economy? | UPSC Economics
• What is the Producer Price Index(PPI)? | UPSC Economics

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