Inflation is crucial to determine one’s purchasing power. In other words, inflation is a measure that causes the prices of both goods and services to rise over time and buyers will feel the pinch as it affects their personal finance, particularly spending and buying habits.
One way of understanding inflation is, for instance, you bought a list of household essentials last month at an expense of INR 1,000, but this month the price of a certain food item in the same list has risen and that has led to an increase in the cost by let’s say INR 1,100. You may be either forced to remove an item from your cart or buy the product that has the inflated price by paying extra which may affect your monthly-set budget.
Therefore, any factor that causes prices of goods and services to rise in the market and create instability in consumption leads to inflation. Economists suggest that achieving inflation that’s moderate enough to drive consumption will create a baseline of growth in the economy. However, high inflation indicates that an economy is facing serious troubles; whereas, low inflation, a.k.a. deflation is equally worrisome.
How to Calculate Inflation Rate In India?
There are two indices that are used to measure inflation in India — the consumer price index (CPI) and the wholesale price index (WPI). These two measure inflation on a monthly basis taking into account different approaches to calculate the change in prices of goods and services. The study helps the government and the Reserve Bank of India (RBI) to understand the price change in the market and thus keep a tab on inflation.
The CPI, which refers to the Consumer Price Index, analyzes the retail inflation of goods and services in the economy across 260 commodities. The CPI-based retail inflation considers the change in prices at which the consumers buy goods. The data is collected separately by the Ministry of Statistics and Program Implementation and the Ministry of Labour.
The WPI, which refers to the Wholesale Price Index, analyzes the inflation of only goods across 697 commodities. The WPI-based wholesale inflation considers the change in prices at which consumers buy goods at a wholesale price or in bulk from factory, mandis, etc.
Average Inflation Rate in India (Last Year)
India’s retail inflation, which is measured by the consumer price index (CPI), rose to a three-month high of 4.81% in June 2023, from 4.25% in May this year, according to the latest data from the Ministry Of Statistics and Programme Implementation. CPI hit the highest of 7.79% in Apr. 2022, and the lowest of 4.06% in Jan. 2021.
On the other hand, inflation data on the wholesale Price Index (WPI), which calculates the overall prices of goods before selling at retail prices, is at 4.12% in June 2023, from 3.48% in May this year
Understanding Inflation and Its Impact on Personal Finance in India
Inflation is a crucial factor in determining an individual’s purchasing power. It is essentially a measure that causes the prices of goods and services to rise over time, which can significantly impact personal finance, particularly spending and buying habits. For instance, if you bought a list of household essentials last month for INR 1,000, but this month the same list of goods has increased in price by INR 1,100 due to inflation, you may be forced to remove an item from your cart or buy a product with an inflated price, which may affect your monthly budget.
Any factor that causes the prices of goods and services to rise in the market and create instability in consumption leads to inflation. Economists suggest that moderate inflation is necessary to drive consumption and create a baseline of growth in the economy. However, high inflation indicates that an economy is facing serious troubles, while low inflation, also known as deflation, is equally worrisome.
In India, there are two indices used to measure inflation – the Consumer Price Index (CPI) and the Wholesale Price Index (WPI). The CPI analyzes the retail inflation of goods and services in the economy across 260 commodities, while the WPI analyzes the inflation of only goods across 697 commodities. The CPI-based retail inflation considers the change in prices at which consumers buy goods, while the WPI-based wholesale inflation considers the change in prices at which consumers buy goods at a wholesale price or in bulk from factories, mandis, and other sources.
According to the latest data from the Ministry of Statistics and Programme Implementation, India’s retail inflation, as measured by the CPI, rose to a three-month high of 4.81% in June 2023, from 4.25% in May of the same year. The CPI hit its highest at 7.79% in April 2022 and its lowest at 4.06% in January 2021. On the other hand, inflation data on the WPI was at 4.12% in June 2023, an increase from 3.48% in May of the same year.
