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CPI (Consumer Price Index) & WPI (Wholesale Price Index) - Inflation in India - YouTube
Channel: Asset Yogi
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Namaskar, my name is Mukul, and welcome to asset Yogi.
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Friends, in this video we are going to understand how inflation is calculated in India.
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How does the government calculate inflation?
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In the last video, we saw what is inflation,
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what is deflation,
What should be the ideal inflation ?
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What are the causes of inflation?
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If you have not seen that video, then watch that video, you will find it in the description below.
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In this video, we will talk in a more detail
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We will understand what the wholesale price Index is.
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What is a consumer price index
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what are their components
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Which index is used in India now?
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And we will also see how inflation is calculated in rural and urban areas.
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So keep watching this video till the end,
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Let's go straight to the blackboard.
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Music
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We saw in the previous video what inflation is
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That it is increasing in the general price level of goods and services
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Meaning if we say in simple language
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Inflation is the increase in the price of things
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And if the prices of things fall, we call it deflation.
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You can call inflation of 2 to 4% is ideal inflation.
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This also leads to growth and keeps people motivated.
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That they invest and make savings
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Money attains to the economy.
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So the economy keeps growing.
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And this is the reason why most governments want to maintain inflation within this range.
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Nobody wants deflation.
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If there is deflation, then it is normal that the prices of things will decrease.
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But people's motivation goes, they do not think about investing and saving.
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So the growth of the economy slows down.
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That's why ideal inflation is said to be between 2% to 4%
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Now let us try to understand how inflation is calculated.
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What is its scenario in India
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In India or economy of any country
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Of any goods and Services
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Let's try to understand their flow chart
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Things are made first in manufacturing
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After that, they go to the wholesale market
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After that
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sold at retail
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That means consumers like you and me buy that stuff
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This is normal flow in every economy
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and in India too
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on what basis we can calculate the prices
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Prices can be calculated at the wholesale level
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If the price index is formed at the wholesale level then we call it the wholesale price index.
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In India earlier inflation was calculated according to the wholesale price rate
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So what is calculated in the wholesale prices?
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Wholesale Price includes mainly three things
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The first is primary articles
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Food and non-food that is not manufactured
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Means that are being produced in raw form
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So that is 22.6 per cent of articles.
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then fuel and power
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cost for transportation and electricity
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That is 13.2% of the wholesale price index
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And manufactured products
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Food
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Whether it is processed food or any manufactured item.
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It contributes a maximum of 64.2%
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According to the wholesale price index inflation was calculated in India earlier
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But there was a flaw in it
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The price that the consumer is getting is not the wholesale price.
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The consumer is getting things according to the consumer price
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It should be calculated.
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So in most countries, inflation is calculated based on the Consumer Price Index.
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Now in India also inflation calculation has started based on a consumer price index.
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It has 6 main components.
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First is food and beverages 45.86%
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You can also understand that we spend the most on food and beverages.
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Pan, tobacco and intoxicants are only 2.38%.
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Clothing and footwear is 6.5%
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Housing is 10.07%
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Fuel and lights is a 6.84%
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and miscellaneous consist of Transportation and Communication
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Education and healthcare
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Which is 28.32% in the consumer price index
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Now let us understand how it is calculated with the consumer price index
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There are three types of CPI calculations separately in this.
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First is CPI rural.
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Meaning all these things are being sold in the village, what is their price?
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It is calculated from CPI rural
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Second is CPI urban
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What are the prices of all these in the cities
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And then these are combined overall.
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That is, by population.
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So CBI Combined comes out
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And these three are published separately.
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We will also see how it is published
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I will also share a pdf with you
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Because CPI has been introduced recently.
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It was introduced in 2013
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So its base year has been kept as 2012.
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The value of the CPI index in 2012 is assumed to be ₹100.
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Which we can call the base index value.
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Whatever the value of CPI will be in the coming time.
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So according to that, we get to know how much inflation fluctuates.
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Let us understand it with example
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Let's say the value in October 2012 was 100.
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When you calculate inflation after 1 year
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So you will see the CPI of October 2013.
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As you can see here's an increment of 10
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We'll call it plus 10.
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If you calculate its percentage
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So you would divide 10 by 100
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This means, there is an inflation of 10%.
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I write here
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There was inflation of 10%.
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Let's take another example
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Suppose in 2012 the value of 100 becomes 101.
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And it's not October 2013,
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let me change it into November.
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You have got 112 values in November 2013.
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So how would you calculate here?
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There is a difference of 11, so 11 divided by
101, which is the initial figure
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So if you calculate this, it will come to 10.89%.
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Now if you compare the inflation of October 2013 and November 2013
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So the inflation rate has gone up a little bit here.
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Inflation is never month to month, it is always year to year.
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Remember this, Inflation goes from 10% to 10.89%.
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If you compare October 2013 and November 2013
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So this is how inflation is calculated
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Let me show you a PDF in which you get the CPI values of different states.
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And also available for All Over India.
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Go to the ministry of statistics and programme implementation
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And when you click this link
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Then you will get the information on CPI
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Right now this is the latest PDF of 2019.
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I have already downloaded this
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So here you can see that you get state wise all CPI
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and as we discussed earlier
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2012 is the base of the CPI, its base value is 100
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And as you can see, these are its components
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Food and beverages
Pan, tobacco, intoxicants
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Clothing and footwear, Housing,
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fuels and light and miscellaneous
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And all these groups mean how much CPI is made by combining all these
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And here you can see that Rural, Urban and Combined are given separately.
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and are given for each state.
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Take an example.
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Like CPI is 140.2 in Delhi.
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CPI of rural areas of foods and beverages.
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Means whose value was ₹ 100 in 2012
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Its value is now 140
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Like you used to buy vegetables or any food item for ₹ 100.
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So today you have to pay ₹140 for the same item in villages
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And have to pay ₹ 137 in the city.
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and in the combine, it is 137.3
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This is how the value of everything else is found.
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and overall, if you see the inflation of rural areas in Delhi.
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Let me zoom in a bit more.
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For rural areas, you will see this value.
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of all groups, for rural, you will see the value of 141
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And for urban you will see a value of 141.3
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and if you want to see the combined value so that is 141.3
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So in this way, you can see of every state
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If we come down, zoom out a little bit and come down
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So here you will also get All India Value
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Check it out here you got All India Value.
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And you will see Combined.
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The value for rural is 142.4 and the value of urban is 139
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and combined value is 140.8
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So in 2012 the things that were available for ₹ 100
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Now their value is 140 or 141,
In November 2018, it is for Rs 141.
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and overall of six years so there is an inflation of 40%
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But as we discussed we do not have to calculate the value of 6 years,
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We have to calculate the value every year.
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So we have to compare the value of November 2018 with that of November 2017
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Then we will know the exact inflation of this particular year in November.
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So I hope that after watching this video your knowledge will increase.
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how inflation is calculated in India
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