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1 January 2015 1Team-1
Inflation and its Components (WPI,CPI)
Inflation is an increase in the overall level of
Because rising prices reduce the buying power
inflation can also be defined as a decline in the
value of money
1 January 2015 2Team-1
What is Inflation?
Wholesale or headline inflation is measured on the
basis of the changes in wholesale price index (WPI)
Helps the government to spot the price rise in advance.
However, wholesale inflation lost its relevance after the
government changed the frequency of reviewing the
index from a weekly to monthly basis, and the Reserve
Bank of India shifted its monetary focus from wholesale
to retail inflation.
1 January 2015 4Team-1
1 January 2015 5Team-1
Retail inflation is calculated on the basis of
changes in the Consumer Price Index (CPI).
Since it measures the impact of price rise,
it is more relevant for financial planning for
the average investor
1 January 2015 6Team-1
Food inflation is a subset of headline inflation
and is expected to rise further in the coming
months due to a deficit in the monsoon rains.
Given the large number of people below the
poverty line, it is a major cause for concern for
developing countries like India.
1 January 2015 8Team-1
Housing inflation is another subset of headline
inflation. It is rising at a faster clip compared with
the headline inflation and was above 15% two
The cost of housing is a major expenditure for
city dwellers and is more important for them. This
is why one must consider it while planning for the
real estate goals.
1 January 2015 10Team-1
1 January 2015 11Team-1
As an individual's income increases, there is a
gradual improvement in lifestyle—bigger house,
branded clothes, better car.
These additional expenses result in what is
termed as lifestyle inflation.
1 January 2015 12Team-1
Education inflation is also a subset of headline
inflation, it only measures the increase in cost of
education and stationery.
1 January 2015 13Team-1
1 January 2015 14Team-1
Medical inflation is relatively under control in
India due to the government restrictions on drug
price rise and technological innovation to keep a
tab on medical equipment costs.
1 January 2015 15Team-1
1 January 2015 16Team-1
WPI-Wholesale price index ( WPI) is designed to
measure the change of price in the primary and
CPI-The CPI measures the average change over
time in the prices paid by urban consumers for
goods and services
1 January 2015 17Team-1
How to measure inflation?
1 January 2015 18Team-1
WPI and its components
1 January 2015 19Team-1
CPI and its components
Laspeyre was a German economist .
His formula used in calculation of WPI, CPI, IIP, service price
It is a Weighted arithmetic mean.
1 January 2015 23Team-1
[Act 7] What is Laspeyre’s formula