The Consumer Price Index (CPI) is a crucial economic indicator that measures changes in the cost of living for households in India. The CPI tracks the price changes of a basket of goods and services consumed by households, including food, housing, healthcare, transportation, and education.
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Calculation of Consumer Price Index (CPI)
The CPI is calculated by selecting a basket of goods and services that represent the typical purchases made by households. The prices of these goods and services are then tracked over time, and the percentage change in prices is calculated to arrive at the CPI.
Significance of Consumer Price Index (CPI)
The CPI is used to monitor inflation and price trends in the economy and is released by the Ministry of Statistics and Programme Implementation on a monthly basis. Investors and traders in the financial markets closely watch the CPI, as it is often used as a leading indicator of inflation and interest rates. When the CPI is high, it indicates that prices are rising, which could lead to higher interest rates, impacting the overall economy.
CPI Calculation Methodology
In recent years, the Indian government has made several changes to the CPI calculation methodology to make it more accurate and relevant. In 2015, the government introduced a new CPI with a revised base year. The revision aimed to better reflect the current market scenario and address data gaps, making the CPI a more effective tool for policymakers, businesses, and investors.
Comparison between WPI and CPI
| Criteria | WPI | CPI |
| Definition | Measures changes in prices of goods at the wholesale level | Measures changes in retail prices of goods and services consumed by households |
| Calculation | Based on the price movements of over 800 items including primary articles, fuel, power, and manufactured goods | Based on the price movements of a basket of goods and services consumed by households in different parts of India |
| Frequency of Release | Weekly | Monthly |
| Usefulness | Provides insights into price movements at the wholesale level | Provides insights into inflation at the consumer level and cost of living for households |
| Scope | Covers goods at the wholesale level | Covers goods and services consumed by households across different sectors of the economy |
| Impact on Economy | Used to monitor inflation and price trends in the economy | Used to track the cost of living for households and inform monetary policy decisions |
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