- Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
What to study?
For prelims and mains: CPI inflation- how is it measures? Its significance, effects of variations on economy.
Why in News? Retail inflation rose to a six-month high of 2.92 per cent in April due to a spike in food prices, according to data the Central Statistics Office. CPI inflation in April is the highest since October 2018 when the rate was 3.38 per cent.
Why is CPI inflation rising?
Rising prices in the food basket, as well as jump in fuel prices, are contributing to the rising inflation.
Rating agency Crisil expects retail inflation to rise by 60 basis points to 4 per cent this fiscal from 3.4 per cent in 2018-19. Within CPI inflation, food inflation is expected to rise in the current year, as last two months witnessed rise in prices of many farm commodities, mainly due to drought in large parts of western and southern India, coupled with an early and harsher-than-usual summer.
What is the impact on interest rates?
Despite rising CPI inflation, analysts expect the Reserve Bank of India to cut repo rate – the rate at which it lends short-term funds to banks – as inflation remains within the RBI’s target of 4 per cent even as growth of the Indian economy has been slowing down.
What Is the Consumer Price Index (CPI)?
The Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them.
Changes in the CPI are used to assess price changes associated with the cost of living; the CPI is one of the most frequently used statistics for identifying periods of inflation or deflation.
Understanding Consumer Price Index (CPI):
The CPI measures the average change in prices over time that consumers pay for a basket of goods and services, commonly known as inflation. Essentially it attempts to quantify the aggregate price level in an economy and thus measure the purchasing power of a country’s unit of currency. The weighted average of the prices of goods and services that approximates an individual’s consumption patterns is used to calculate CPI.
Sources: The Hindu.