How is Inflation calculated in India?

9 Oct

I had to prepare an assignment on how inflation is measured in India. So, I did some basic study online and thought about sharing the details.

In India, inflation is calculated based on the Wholesale Price Index (WPI). WPI measures changes in price of a representative basket of wholesale goods. The purpose of WPI is to monitor price movements that reflect supply and demand in industry, manufacturing and construction. This helps in analysing macroeconomic and micro-economic conditions.

India is one of the few countries that are using WPI to calculate inflation. Most of the developed countries use CPI or Consumer Price Index. There is a on-going debate on whether India should move from WPI to CPI-IW to calculate inflation.

The WPI data is published every week with a two week lag. As per widely discussed news reports, our inflation rate for Aug, 11 stands at 9.78%. So, how is this calculated.

Basically, by 9.78%, we mean the annual rate of year-on-year inflation rate based on WPI. Inflation rates are regularly updated at http://statisticsofindia.com/tatasoi/.

The WPI data is available at http://eaindustry.nic.in/.

So, the formula for calculation of the inflation from WPI is (WPI, Aug 2011 – WPI Aug, 2010) * WPI Aug, 2010 *100%

(154.9-141.1)*141.1*100 gives us 9.78%.

While drafting this post, I was looking at how to add mathematical equations in WordPress posts. However, it will some time to understand.

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