In March 2022, India completed 12 successive months of double-digit wholesale price inflation (WPI inflation). This is the sixth occasion when inflation has remained over 10% for a year or longer, and it came more than a quarter of a century after the last such episode — between March 1994 and May 1995.
LEARNING FROM HOME/ WITHOUT CLASSES/ BASICS
INFLATION: It is an economic condition in which prices of goods and services rise and the value of money falls or money circulation exceeds the production of goods and services. This rise in the general price level in an economy results in the decline of the currency’s purchasing power over time.
Demand-Pull Effect
Demand-pull inflation occurs when an increase in the supply of money and credit stimulates overall demand for goods and services in an economy to increase more rapidly than the economy’s production capacity. This increases demand and leads to price rises.
Cost-Push Effect
Cost-push inflation is a result of the increase in prices working through the production process inputs.
Fiscal Policy: This policy monitors the spending and borrowing of the economy. When the borrowings are high, it results in increased taxes and increases currency printing to repay the debt.
Monetary Policy: This policy monitors the supply of currency in the market. When there is an excess supply of money, it causes inflation and decreases the value of the currency.
Hyperinflation: This occurs when prices go up by 50% a month. It is a very rare occurrence.
Galloping Inflation: When inflation rises to 10% or more, it causes chaos. The currency loses its value so quickly that businesses and employee income can’t keep up with costs and prices.
DISINFLATION:
It refers to a situation in which prices are brought down moderately from their higher level without any adverse impact on production and employment.
Stagflation occurs when economic growth is stagnant but there still is price inflation.
Core Inflation: It is the rise in the prices of everything except food and energy. That’s because the prices of energy (power and fuel) and food are highly volatile, and therefore, they have been kept out of core inflation.
The nation’s central bank changes interest rates to keep inflation at around 2% to 6%. The RBI will lower interest rates to boost lending if inflation does not reach its target. The RBI will raise interest rates if inflation exceeds its target. Inflation targeting has become a critical component of monetary policy.
Consumer Price Index(CPI) looks at the price at which the consumer buys goods, the WPI tracks prices at the wholesale, or factory gate/mandi levels.
WPI only tracks basic prices devoid of transportation cost, taxes and the retail margin etc. And that WPI pertains to only goods, not services.
The CPI is a measure that assesses the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care, purchased by households.
The Difference between WPI and CPI
| WPI | CPI |
| Calculates the average change in prices of commodities at the wholesale level.( First stage of a transaction) | At the retail level.( Final stage of a transaction) |
| Data published By: Office of Economic Advisor (Ministry of Commerce & Industry) | Central Statistics Office (Ministry of Statistics and Programme Implementation) & Labour Bureau |
| Covers Goods only | Goods and Services both |
| Manufacturers and wholesalers (Producer Level) | Consumers (Consumer Level) |
| Manufacturing inputs and intermediate goods like minerals, machinery basic metals, etc. | Education, communication, transportation, recreation, apparel, foods and beverages, housing and medical care |
| Base Year:2011-12 | 2012 |
In April 2014, the RBI had adopted the CPI as its key measure of inflation.( Urjit R. Patel Committee report recommendations
INFLATION: It is an economic condition in which prices of goods and services rises and value of money falls or money circulation exceeds the production of goods and services.
DISINFLATION: It refers to a situation in which prices are brought down moderately from its higher level without any adverse impact on production and employment.
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