What is Inflation, Consumer Price Index?

What is inflation?

Ghee used to cost 4 rs per kilo once upon a time.

Today, it costs anywhere from 550-900 rs a kilo.

We all know that over a period of time, we pay more money for the same quantity of things. This gradual rise of prices is called inflation.

What if, instead of rising, prices start to all and keep falling for many months? That is called deflation.

Sometimes, the prices rise, but not so much that they can make a real difference. When inflation rises at a stagnant pace, that is called stagflation.

Sometimes, prices rise very quickly. This makes it hard to buy even daily use items. Such a runaway increase in prices is called Hyperflation. You might remember that we covered hyperflation in Venezuela.

What is Consumer Price Index?

We need a way to find out how much more expensive things have become. So, we use a simple method.

Suppose, in 2012, a group of items used to cost 100 rs. How much does it cost today?

Using this method/process, we get to know by how much prices have increased.

This process is called indexing.

There are many indexes that tell us different stories.

Consumer Price Indices (CPI) measures change over time in general level of prices of goods and services that households need.

The Price Statistics Division (PSD) of the National Statistical Office (NSO), Ministry of Statistics and Programme Implementation (MoSPI) started compiling Consumer Price Index (CPI) separately for rural, urban, and combined sectors on monthly basis with Base Year (2010=100) for all India and States/UTs with effect from January 2011.

In 2015, the Base Year was changed (revised) from 2010=100 to 2012=100.