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Monday, May 16, 2011

Indian Inflation Rate

India uses WPI (Wholesale Price Index) method for calculating the inflation while other developed countries use CPI (Consumer Price Index) method for the same.
WPI is the index which uses the prices of goods traded in the wholesale market. There are around 435 commodities which are tracked through WPI.
WPI is not the right method to calculate the inflation as common man fetches goods in the retail market where prices are much higher than wholesale market.
CPI considers the prices of good in the retail market therefore making it a better way to calculate the inflation.
One more point which gives CPI method an edge over WPI one is that there are 100 commodities tracked by WPI which now-a-days no longer find place in common man’s day to day life.
Indian government is reluctant to switch to CPI method for various reasons.
One being, CPI numbers are reported too late as calculation is done on the monthly basis while WPI numbers are calculated on weekly basis.
WPI data is calculated on all India basis.
Another reason is, there are 4 series of CPI and choosing one out of those is quite difficult.

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