Measures of Inflation.

1. GDP Deflator:
   • Definition: The GDP Deflator is a comprehensive measure of inflation that reports the change in prices of all domestically produced final goods and services in an economy.
   • Scope: It covers all goods and services domestically produced, making it highly inclusive.
   • Usage: While not used for short-term decision-making due to its long-time lag in availability, it provides a broad overview of inflation trends.
2. Cost of Living Index:
   • Definition: The Cost of Living Index is based on defining a certain standard of living requiring a specific set of goods and services (basket) and tracking the changes in the cost of maintaining this predefined standard.
   • Purpose: It helps measure the affordability of a particular standard of living and tracks how it changes over time.
3. Producer Price Index (PPI):
   • Overview: PPI is used to measure changes in prices at the producer level, differentiating between the prices producers receive for their goods/services (Output PPI) and the prices they pay for goods/services (Input PPI).
   • Purpose: It helps identify whether changes in wholesale prices are justified, allowing for scrutiny of margins at the producer and wholesaler levels.
4. Components:
   • Output PPI: Price a producer receives for goods/services.
   • Input PPI: Price a producer pays for goods/services.
   • Control: By tracking margins and controlling excessive ones, it can positively impact inflation.
   • Tracking: Producer prices can be tracked based on basic prices (without indirect taxes) or market prices.
5. Department for Promotion of Industry and Internal Trade (DPIIT):
   • Role: DPIIT, under the Ministry of Commerce and Industry, set up a working group on PPI in 2014 to outline the timeline for the launch of the PPI series.
   • Report: The working group, chaired by B.N. Goldar, submitted its report in 2017, indicating efforts to establish a comprehensive PPI series in India.

These measures provide a diverse set of perspectives on inflation, enabling policymakers to assess and respond to various aspects of price changes in the economy.

Wholesale Price Index (WPI):

• Definition: The Wholesale Price Index (WPI) measures changes in the prices of goods sold and traded in bulk by wholesale businesses to other businesses.
• Publisher: Published by the Office of Economic Adviser, Ministry of Commerce and Industry.
• Usage: Widely used as an inflation indicator in India.
• Criticism: Criticized for not reflecting the prices paid by the general public, as they typically buy products at retail prices.
• Base Year Revision: The base year of All-India WPI was revised from 2004-05 to 2011-12 in 2017.

Consumer Price Index (CPI):

• Definition: The Consumer Price Index (CPI) measures price changes from the perspective of a retail buyer and is released by the National Statistical Office (NSO).
• Commodities Covered: Calculates the difference in the price of various commodities and services, including food, medical care, education, electronics, purchased by Indian consumers for personal use.
• Sub-Groups in CPI:
• Food and Beverages
• Fuel and Light
• Housing
• Clothing, Bedding, and Footwear
• Types of CPI:
  1. CPI for Industrial Workers (IW)
  2. CPI for Agricultural Labourer (AL)
  3. CPI for Rural Labourer (RL)
  4. CPI (Rural/Urban/Combined)
• Compilation:
  • First three compiled by the Labour Bureau in the Ministry of Labour and Employment.
  • Fourth compiled by the NSO in the Ministry of Statistics and Programme Implementation.
• Base Year for CPI: The base year for CPI is 2012.
• New Series: Recently, the Ministry of Labour and Employment released the new series of Consumer Price Index for Industrial Worker (CPI-IW) with the base year 2016.
• Use in Monetary Policy: The Monetary Policy Committee (MPC) uses CPI data to control inflation, and the Reserve Bank of India (RBI) adopted CPI as its key measure of inflation in April 2014.