RETAIL INFLATION

Consumer Price Index (CPI) monitors retail prices at a certain level for a particular commodity; price movement of goods and services at rural, urban and all-India levels.
The change in the price index over a period of time is referred to as CPI-based inflation, or retail inflation.
Generally, CPI is used as a macroeconomic indicator of inflation, as a tool by the central bank and government for inflation targeting and for inspecting price stability, and as deflator in the national accounts.
CPI also helps understand the real value of salaries, wages, and pensions, the purchasing power of the nation’s currency, and regulating rates.
CPI, one of the most important statistics to ascertain economic health, is generally based on the weighted average of the prices of commodities.
It basically gives an idea of the cost of the standard of living.

How is CPI calculated (CPI formula)?

To calculate CPI, multiply 100 to the fraction of the cost price of the current period and the base period.
CPI formula: (Price of basket in current period / Price of basket in base period) x 100

What is WPI?

The other index that measures inflation is the Wholesale Price Index (WPI).
While retail inflation looks at the price at which the consumer buys the product, WPI is measured based on prices at the wholesale level.
“There are two layers between the wholesale price and retail price, one is the additional cost of transportation from the wholesale to the point of sale, and the other is the retail mark-up.
During the lockdown, for instance, it was more difficult to transport goods, and that additional cost got added to individual prices, if there is scarcity, the retail margin goes up, adding to the price.
Another difference between the two indices is that the wholesale market is only for goods, you cannot buy services on a wholesale basis. So WPI does not include services, whereas the retail price index does. “The pricing norms of wholesale and retail are also different.
Certain items on WPI, such as fuel, are also closely linked to international prices, creating a gap between the figures on this index and the CPI.

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