article on inflation

article on inflation

DESPITE OF LOWER INFLATION and DEFLATION WHY THE PRICE OF MANY CONSUMER PRODUCT SOARING IN INDIA?
In India inflation is measured by using Wholesale Price Index (WPI) Model. In which inflation is calculated by taking basket of hundreds of common goods. The price increases is multiplied with their weigahtage or their relative importance as a percentage of consumer spending.
There are 435 commodities in India to form a part of the “Basket”. Data on the price level of each of these commodities is tracked through the WPI which is an indicator of movement in prices of commodities in all trade and transactions.
But prices of different commodities rise at different rates. So if items of higher weightage cost less (showing low inflation, like electronics products) and certain other items (of lower weightage like vegetables) cost more, the overall inflation rate will be reflected as low. However consumers will end up pay more for some commodities despite of being inflation rate is low. Like it is happening in India to the price of vegetables.
What’s wrong with India in case of measuring inflation?
• Wholesale price index (WPI) doesn’t properly measure the exact price rise and end consumer will experience because, as the name suggests, it is at the wholesale level.
• The main problem with WPI calculation is that more than 100 out of the 435 commodities included in the index have ceased to be important from the consumption point of view.
• India constituted the last WPI series of commodities in 1993-94, but has not been updated till now, so the effect may be expired.
• WPI is supposed to measure impact of prices on business. But India uses it to measure the impact on consumer. Man commodities not used b the consumer gets calculated in the index.
To understand the above let us get overview on the difference between WPI vs. CPI
Wholesale price index (WPI)-
A Wholesale Price Index (WPI) is the price of a representative basket of “wholesale...