INFLATION IN INDIA

Whats Inflation ? Inflation is a rise in the general level of prices of goods and services over time. "Inflation" is used to refer to a rise in the prices of some specific set of goods or services, as in "commodities inflation".

Headlines about Inflation September 1974 – Inflation reached historical high of 34.68% 15th August 2008 – Inflation continues rising hits 12.44% 14th August 2008 – PM panel pegs inflation at 13% September 2011 – Inflation rate last reported is 9.72%

India Inflation Rate Chart (in %)

Causes of Inflation Demand pull Inflation Cost push Inflation

How it is measured ? Consumer Price Indices(CPI) Whole sale Price Indices(WPI) National Income Deflator

Consumer Price Index CPI is a measure estimating the average price of consumer goods and services purchased by households. CPI measures a price change for a constant market basket of goods and services from one period to the next within the same area (city,region, or nation ) It is a price index determined by measuring the price of a standard group of goods meant to represent the typical market basket of a typical urban consumer. The percent change in the CPI is a measure estimating inflation.

Wholesale Price Index WPI was published in 1902,and was one of the economic indicator available to policy makers until it was replaced by most developed countries by the CPI market index in the 1970. WPI is the index that used to measure the change in the average price level of the goods traded in wholesale market. Some countries(like India and The Philippines) use WPI changes as a central measure of inflation. However, India and the United States now report a producer price index instead.

National Income Deflator Defined as a ratio of GDP at current prices and GDP at constant prices. It encompasses all the goods and services produced in the economy. However, its application is limited as it is released on a quarterly basis by CSO and then its comes with a lag of 2 months (eg figures for quarter Jan-Mar 2008 quarter are released on 30 May,2008).

Trends Long term trends Short term trends (a week to week trend )

Index Numbers of Wholesale Prices in India( Monthly Averages)

Source: Reserve Bank of India (RBI)

Steps taken by the Government so far. To keep the prices of essential commodities under control, and within reasonable limits, the Indian government had constituted the Cabinet Committee on Prices and the Special Committee of Secretaries on Monitoring Prices. Apart from these, the Department of Consumer Affairs monitors the prices of 12 essential commodities viz; wheat, rice, sugar, arhar, gram, groundnut oil, mustard oil, vanaspati, salt, tea, potatoes and onions on a daily and weekly basis. Those commodities that are in short supply are imported. The Government said that liberalization of imports, banning exports and a cut in excise and customs duties are among the steps taken by the Government to control inflation in the country. The Government has directed the Reserve Bank of India (RBI) to take monetary measures and to raise interest rates to control Inflation. The Central Government of India has directed the Chief Ministers of all the states in India to take preventive measures to control Inflation like cutting down of sales tax , custom and excise duties .

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