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Inflation & It’s elements

Posted by admin | 21 August 2012

Inflation impacts fuel prices and asw you may have noticed they are rising again.  Look at LPG on your vehicle and avoid paying top dollar!!!
In economics, the word inflation refers to general rise in prices, measured against a standard level of purchasing power. Previously, the term was used to refer to an increase in the money supply, and now referred to as expansionary monetary policy pr monetary inflation. Inflation is measured by comparing two sets of goods at two points in time, and computing the increase in cost not reflected by an increase in quality.

Wholesale Price Index (WPI)
Declared on a monthly basis, the index is calculated on the average rate of change in the wholesale market. The WPI contains 980 commodities, with a base year of 2004-05. The WPI basket comprise manufactured products (65%), primary articles (20%) and fuel & power (15%). Food articles are a part of primary articles, constituting 14% of the overall WPI. Processed foods, part of manufactured products, account for 11% of the WPI.

Commodity Price Index (CPI)
The CPI is declared on a monthly basis. It is a statistical time series value based on the weighted average rate of change in the prices of a set of goods and services purchased by the consumer. The CPI is more comprehensive, catching the inflation value from the end-consumer perspective rather than from a wholesale one.

In India,  inflation is measured by movement of the WPI, which is more closely followed than the CPI.

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