Why in news:
- India’s retail inflation is likely to have fallen to a 25-month low of 4.34% in May from 4.70% in the previous month, helped by softer rise in food prices and a favourable base effect.
More about retail inflation CPI:
- Consumer price index measures changes in the prices of goods and services purchased by households.
- It is released by the Central Statistics Office, Ministry of Statistics and Programme Implementation.
- The dearness allowance of the Government employees and wage contracts between labour and employer are based on this index.
- CPI have been widely used as a macroeconomic indicator of inflation.
- The Central Statistics Office, MOSPI in 2015 revised the base year of the CPI from 2010 to 2012.
Divergence between WPI and CPI:
- Food inflation is more reflected more in CPI as its weight is more in CPI than in WPI.
- Services are included in the CPI but not included in the WPI.
- While wholesale prices are about the same throughout the country, consumer prices vary from region to region.
- Inflation targeting focuses mainly on achieving price stability as the main objective of monetary policy.
- A new chapter was added in the RBI act, with the details of the operation of a Monetary Policy Committee.
- In 2016, the RBI act,1934 was amended to provide a statutory basis for the implementation of the flexible inflation targeting framework.
- The amended act also provides for the inflation target to be set by the Government of India, in consultation with the RBI once every 5 years.
- Accordingly, the central government notified 4 percent Consumer Price Index inflation.
- Inflation expectations survey of households is conducted by the RBI periodically.
Syllabus: Prelims; Economy