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:

  • 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