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13th September 2024 (9 Topics)

CPI-based Inflation or Retail Inflation

Context

India's Consumer Price Index (CPI)-based retail inflation increased to 3.65 per cent in August (from 3.60 per cent in July), according to the government data. The Reserve Bank of India (RBI) aims to keep inflation around 4%.

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CPI inflation in August remains below the 4% mark, food price pressures continue

  • Food inflation as measured by the Consumer Food Price Index inched up marginally to 5.66% in August from 5.44% in July. It was at 9.94% in August 2023.
  • Core Inflation: This excludes volatile items like food and fuel to provide a clearer picture of underlying inflation trends.
    • Current Rate: Stands at 3.5%. Despite this, there have been slight increases in prices for clothing (2.72%) and services like recreation (2.31%), education (3.74%), and health (4.10%).
  • Industrial Production: The Index of Industrial Production (IIP) tracks the output of factories, mines, and utilities. It reflects how much industrial activity is happening in the economy.
    • July’s IIP: Increased to 4.83%, up from 4.72% in June. This indicates a small improvement in industrial activity, suggesting that factories and businesses are producing more goods.

Fact Box: What is CPI-based Inflation or Retail Inflation?

  • CPI-based Inflation or Retail Inflation is a metric that is used to measure inflation.
  • CPI measures retail inflation by collecting data on the prices of goods and services that are consumed by the retail population of the country.
  • CPI meaning refers to an increase in the price level of a selected basket of goods and services over a select period of time.
  • It is a macroeconomic indicator of inflation. It is a tool for the central bank and government for inflation targeting and for inspecting price stability, and as deflator in the national accounts.
  • Calculation: It is calculated by referring to a base year which is a benchmark. The base year is monitored by the Central Statistics Office, Ministry of Statistics and Programme Implementation (MoSPI), and changes from time to time.
    • MoSPI updated the base year of the Consumer Price Index (CPI) from 2012 to 2024 to improve economic data accuracy.
  • Categories: Food and beverages, clothing, housing, fuel and light, etc.
  • CPI formula: (Price of basket in current period / Price of basket in base period) x 100
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