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Inflation and its Components (WPI,CPI)

Presented by,

S.Abarna

R.Rachel

Inflation is an increase in the overall level ofprices.

Because rising prices reduce the buying powerof money

inflation can also be defined as a decline in thevalue of money

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What is Inflation?

WHOLESALE INFLATION

RETAIL INFLATION

FOOD INFLATION

HOUSING INFLATION

LIFESTYLE INFLATION

EDUCATION INFLATION

MEDICAL INFLATION

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7 Types of Inflation

Wholesale or headline inflation is measured on thebasis of the changes in wholesale price index (WPI)

Helps the government to spot the price rise in advance.

However, wholesale inflation lost its relevance after thegovernment changed the frequency of reviewing theindex from a weekly to monthly basis, and the ReserveBank of India shifted its monetary focus from wholesaleto retail inflation.

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1.Wholesale Inflation

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Graph-Wholesale Inflation

Retail inflation is calculated on the basis ofchanges in the Consumer Price Index (CPI).

Since it measures the impact of price rise,it is more relevant for financial planning forthe average investor

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2.Retail Inflation

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Graph-Retail Inflation

Food inflation is a subset of headline inflationand is expected to rise further in the comingmonths due to a deficit in the monsoon rains.

Given the large number of people below thepoverty line, it is a major cause for concern fordeveloping countries like India.

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3.Food Inflation

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Graph-Food Inflation

Housing inflation is another subset of headlineinflation. It is rising at a faster clip compared withthe headline inflation and was above 15% twoyears ago.

The cost of housing is a major expenditure forcity dwellers and is more important for them. Thisis why one must consider it while planning for thereal estate goals.

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4.Housing Inflation

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Graph-Housing Inflation

As an individual's income increases, there is agradual improvement in lifestyle—bigger house,branded clothes, better car.

These additional expenses result in what istermed as lifestyle inflation.

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5.Lifestyle Inflation

Education inflation is also a subset of headlineinflation, it only measures the increase in cost ofeducation and stationery.

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6.Education Inflation

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Graph-Education Inflation

Medical inflation is relatively under control inIndia due to the government restrictions on drugprice rise and technological innovation to keep atab on medical equipment costs.

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7.Medical Inflation

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Graph-Medical Inflation

WPI-Wholesale price index ( WPI) is designed tomeasure the change of price in the primary andwholesale markets.

CPI-The CPI measures the average change overtime in the prices paid by urban consumers forgoods and services

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How to measure inflation?

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WPI and its components

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CPI and its components

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WPI and CPI

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WPI-Importance

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CPI-Importance

Laspeyre was a German economist .

His formula used in calculation of WPI, CPI, IIP, service priceindices.

It is a Weighted arithmetic mean.

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[Act 7] What is Laspeyre’s formula

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Laspeyre’s Formula

http://mrunal.org/2014/08/explained-wpi-cpi-iip-index-component-core-inflation-headline-inflation-laspeyre.html

http://articles.economictimes.indiatimes.com/2014-07-14/news/51484981_1_headline-inflation-wholesale-price-index-wpi

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References