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:

• 1. CPI for Industrial Workers (IW)
  2. CPI for Agricultural Labourers (AL)
  3. CPI for Rural Labourers (RL) and
  4. 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.

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