Wednesday, May 28, 2008

How India calculates inflation

India uses the Wholesale Price Index (WPI) to calculate and then decide the rate of inflation in the economy. Most developed countries use the Consumer Price Index (CPI) to calculate inflation.

The main problem with WPI calculation is that more than 100 out of the 435 commodities included in the Index have ceased to be important from the consumption point of view. Take, for example, a commodity like coarse grains that go into making of livestock feed. This commodity is insignificant, but continues to be considered while measuring inflation.

WPI does not properly measure the exact price rise an end-consumer will experience because, as the same suggests, it is at the wholesale level.
How India calculates inflation
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