What is Inflation and how it is measured

How do you measure inflation?

Inflation is one of the biggest stories of recent weeks, and has received a great deal of attention from the media and politicians. At the same time, inflation is an economic problem that the average person meets on a daily basis in terms of higher prices, particularly of food products.

How is inflation measured?

In India, there are two broad measures of inflation - based on the consumer price index (CPI) and based on the wholesale price index (WPI). Of the two, the latter has a higher profile because it is measured every week. When you read about inflation rising to 7%, it is probably referring to inflation based on WPI.

WPI is based on the wholesale prices of 435 items ranging from agricultural commodities like wheat, rice, groundnuts etc to manufactured products like steel, cement etc. A single index number is calculated based on those prices, and the inflation rate is calculated by comparing the most recent index number with that of a year ago.

What is the government going to do about inflation?

The government has taken some quick steps like trying to curb exports in sensitive commodities and reduce the cost of imports. The is done because exports reduce domestic supply adding to the pressure on prices . Therefore, the government has already banned the export of cement and non-basmati rice and may ban other commodity exports later.

RBI has also taken action by raising rates, which will reduce liquidity and the total demand in the economy that will reduce the pressure on prices.

Some Source..

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