Why in news : Recently Retail inflation in India has reached 5.88% in November. This is the first time in 2022 that retail inflation falling below 6%.

What is Inflation?

  • Inflation generally denotes to persistent rise in the average price of goods and services.

Types of inflation :

  • Creeping inflation : It is when the rate of general price increase if upto 4 percent in a year.
  • Trotting inflation : If the creeping inflation is not controlled then it may result into Trotting inflation. The price rise may increase up to 8-10 percent a year.
  • Hyperinflation : It is when the prices are out of control. The monthly inflation may reach upto 20 to 30 percent or more.

Measures of Inflation :

There are basically 2 most important indices which measure the inflation at different levels and by taking different items in to count.

They are

  1. Wholesale Price Index (WPI)
  2. Consumer Price Index (CPI)

Wholesale Price Index :

  • Wholesale price index tracks the price changes at wholesale level.
  • It is released by the Office of Economic Advisor, Ministry of Commerce and Industry.
  • It covers only goods. It does not include services.
  • The base year is 2011-12.
  • The number of articles included in it are 697.
  • The type of articles included are Manufacturing inputs, Machinery goods and intermediate goods.

Consumer Price Index :

  • It generally indicates the average changes in the price level at retail level.
  • It is released by the National Statistical Office, Ministry of Statistics and Program Implementation.
  • It includes both goods and services.
  • The base year is 2012.
  • It has 448 articles in CPI-rural index and 460 articles in CPI- Urban.
  • The dearness allowance of Government employees and wage contracts between labour and employer are based on the CPI.
  • CPIs have been widely used as a macroeconomic indicator.
  • It is also used by the Government and central bank of the country for targeting the inflation and to monitor the price stability in the economy.

Syllabus : Prelims + Mains; GS3- Indian Economy

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