From UPSC perspective, the following things are important :
Prelims level : Wholesale and Retail (Consumer) Inflation
Mains level : Not Much
India’s retail inflation inched up to an eight-month high of 6.07% in February from 6.01% in January, with rural India experiencing a sharper price rise at 6.38%.
What is Retail Inflation?
- When we generally talk about retail inflation, it often refers to the rate of inflation based on the consumer price index (CPI).
- The CPI tracks the change in retail prices of goods and services which households purchase for their daily consumption.
- The CPI monitors retail prices at a certain level for a particular commodity; price movement of goods and services at rural, urban and all-India levels.
- The change in the price index over a period of time is referred to as CPI-based inflation, or retail inflation.
What is Consumer Price Index (CPI)?
- It is an index measuring retail inflation in the economy by collecting the change in prices of most common goods and services used by consumers.
- In India, there are four consumer price index numbers, which are calculated, and these are as follows:
- CPI for Industrial Workers (IW)
- CPI for Agricultural Labourers (AL)
- CPI for Rural Labourers (RL) and
- CPI for Urban Non-Manual Employees (UNME).
- While the Ministry of Statistics and Program Implementation collects CPI (UNME) data and compiles it, the remaining three are collected by the Labour Bureau in the Ministry of Labour.
- The base year for CPI is 2012.
- To calculate CPI, multiply 100 to the fraction of the cost price of the current period and the base period.
Significance of CPI
- Generally, CPI is used as a macroeconomic indicator of inflation, as a tool by the central bank and government for inflation targeting and for inspecting price stability, and as deflator in the national accounts.
- CPI also helps understand the real value of salaries, wages, and pensions, the purchasing power of the nation’s currency, and regulating rates.
- CPI, one of the most important statistics to ascertain economic health, is generally based on the weighted average of the prices of commodities.
- It basically gives an idea of the cost of the standard of living.