Retail Inflation

In News

• India’s benchmark inflation rate, measured by the Consumer Price Index (CPI), firmed up to 5.59% year-on-year in December 2021, data released by the Ministry of Statistics and Programme Implementation showed.

About

• With this, the CPI has remained within the RBI’s tolerance level for the sixth consecutive month.
• According to the Monetary Policy Committee’s official mandate, the rate-setting panel is supposed to keep inflation in a band of 2-6%, with the medium-term target being 4%.

CPI-based Inflation

• Retail prices of goods and services: When we talk about the rate of inflation, it often refers to the rate of inflation based on the consumer price index (CPI).
  • The CPI tracks the change in retail prices of goods and services which households purchase for their daily consumption.
• To measure inflation: we estimate how much CPI has increased in terms of percentage change over the same period the previous year.
  • If prices have fallen, it is known as deflation (negative inflation).
  • The Central Bank (RBI) pays very close attention to this figure in its role of maintaining price stability in the economy.
• CPI also helps understand: the real value of salaries, wages, and pensions, the purchasing power of the nation’s currency, and regulating rates.
• CPI formula: (Price of basket in current period / Price of basket in base period) x 100

Source: ET