Retail Inflation Rises

Context:

Retail inflation in India increased to 2.1% in August 2025, ending a nine-month declining trend.

Retail Inflation & Consumer Price Index (CPI)

Retail Inflation: Also called CPI inflation, measures the change in retail prices of goods and services purchased by households for daily consumption.
Consumer Price Index (CPI): Index tracking the price level of a fixed basket of goods and services over time. The change in CPI over time reflects retail inflation.

Purpose of CPI

CPI provides insights into:

Cost of Living: Indicates how expensive it is to maintain a certain standard of living.
Purchasing Power: Helps assess the buying capacity of consumers.
Price Level of Goods & Services: Tracks expensiveness of commodities and services.
Value of Currency: Acts as an indicator of the Indian Rupee’s real value over time.

Calculation of CPI

CPI compares the cost of a fixed basket of goods and services in the current year to a base year.
Current Base Year: 2012 (India).
Formula:
CPI = (Cost of the market basket in the current year / Cost of the market basket in the base year) x 100
Compiled by the National Statistical Office (NSO), Ministry of Statistics and Programme Implementation (MoSPI).
Scope: Provides All India as well as state-wise CPI for Rural, Urban, and Combined sectors.

Uses of CPI / Retail Inflation

Macroeconomic Indicator:Reflects general price levels and inflation trends in the economy.
Monetary Policy & Inflation Targeting:RBI uses CPI as a benchmark for monetary policy, including repo rates and interest rate adjustments and ensures price stability and manages inflation within the comfort band (2%-6%).
Fiscal Policy & National Accounts:Used as a deflator in national accounts to calculate real GDP and economic growth.
Wage & Pension Adjustments:Helps in indexing salaries, wages, and pensions to maintain real purchasing power.
Currency Valuation & Purchasing Power:Indicates the real value of Indian Rupee in terms of domestic consumption.