Inflation and the Indian Economy: At Glance

The term Inflation refers to the rise in the general price level of the goods and services with a consequent fall in the purchasing power of money. “Too much money chasing too few goods”. In the Indian context the government uses the WPI, CPI and also the GDP Deflator as same as other countries but the WPI is generally considered as an indicator of the inflation in India. Taking the scenario of the difficulties faced in calculation of the CPI which is much more troublesome than the WPI made the Reserve Bank of India to formulate the Measures in order to regulate the Inflation and also for other policy related frameworks. The Wholesale Price Index (WPI) which calculates the prices of the goods only with the wholesaler and the reality lies with the Consumer and at what price the common man is getting the goods this is generally shown by the Consumer Price Index (CPI). In fact, one reason of RBI for using the WPI is data frequency of it and it is available weekly basis and it also has a broader coverage than the CPI in number of commodities, trade able items etc., whereas CPI is available in India on monthly basis. The CPI is calculated separately for the Industrial workers and for the Agricultural laborers and the CPI for all India In order to capture the effects of the cost push and demand pull inflation separately one needs to glance the both CPI and also WPI respectively. The using of CPI by the RBI started with the recommendation of the Urjith patel led committee in 2014. The CPI is more close to the real situation than those of the WPI as said earlier. Thus, Inflation is a sustained increase in the general level of prices for goods and services. When inflation goes up, there is a decline in the value, or purchasing power of money. Variations on inflation include disinflation, deflation, hyperinflation and stagflation. Theories as to the cause of inflation are up for debate. Some common theories include demand-pull inflation, cost-push inflation, and monetary inflation. When there is unanticipated inflation, creditors lose, people on a fixed-income lose, menu costs go up, uncertainty reduces spending and exporters aren't as competitive. Lack of inflation (or deflation) is not necessarily a good thing and can lead to destabilizing deflationary spirals.