INFLATION (Syllabus: GS Paper 3 - Economy)

Context: Retail inflation rate surged to a 15-month high of 7.44 percent in July, primarily driven by a rise in prices of vegetables, cereals, pulses, spices, and milk and products. The effect was seen countrywide. Headline inflation is likely to average above 6 percent in the July-Sept quarter, and a rate cut by RBI seems unlikely.

About Inflation

• Inflation happens when the cost of things goes up in an economy, which makes it harder for people to buy stuff and reduces the value of the money they have.
• Measured By: Ministry of Statistics and Programme Implementation
• Inflation tracks how the prices of a collection of goods and services change on average as time passes.
• Two main sets of inflation indices: The Wholesale Price Index (WPI) and the Consumer Price Index (CPI).

Retail Inflation

• It is also known as Consumer Price Index (CPI) inflation, which is the speed at which prices of items people purchase for their personal needs go up over a period.
• It checks how much the cost changes for a set of items that families usually get, like food, clothes, homes, transport, and medical help.

Headline Inflation: The total economic inflation that includes food and energy (not included in core inflation)  prices.