P1 Inflation Explained

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&
GOODS SERVICES

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Rise in the general price

level in the economy

I O N
T
IN FLA
Price

&
GOODS SERVICES
Year
INFLATION

If the price of one / two goods

have gone up

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 P1 Inflation Explained

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5500 - 5000
INFLATION % = 5000
x 100 = 10 %

& &
2021 2022

5000 5500

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5500 - 5000
INFLATION % = 5000
x 100 = 10 %

33638

5000 &
2021 2041

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 P1 Inflation Explained

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Prices of goods and services starts

INFLATION % shooEng up at almost every day.
[ Extreme Form of InflaEon ]
Hyper InflaEon
Walking InflaEon

> 50 %

0% 4% 10 % 50 %

Creeping InflaEon Galloping InflaEon

Low inflaEon in the range on 2% to InflaEon in the range of 10% to 50%
4% is considered good for the is considered dangerous for the
economy as producers and traders economy.
make reasonable profits which Hopping InflaEon
encourage them to invest more. Jumping InflaEon
Running / Runaway InflaEon

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INFLATION %
Hyper InflaEon erodes the value
of money very fast

> 50 % Hyper InflaEon [ Extreme Form of InflaEon ]

50 % Million %

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 P1 Inflation Explained

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INFLATION
1 Million %

Today Tomorrow

50 1419

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INFLATION
1 Million %

Today Tomorrow

50 1419

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 P1 Inflation Explained

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HYPER INFLATION
1 Million %

Today Tomorrow

50 1419

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2008

HYPER INFLATION
1 Million %
90 Billion Million %

3.5 Crore
Zimbabwe dollar
(ZWD)

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 P1 Inflation Explained

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2008

HYPER INFLATION
1 Million %
90 Billion Million %

The Economist magazine had declared the

currency of Zimbabwe as worthless

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HYPER INFLATION

1923
Germany

2019
Venezuela

2008

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 P2 Cost Push Inflation & Demand Pull Inflation

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INFLATION

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Rise in the general price

level in the economy

I O N
T
IN FLA
PRICE

&
GOODS SERVICES
YEAR

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 P2 Cost Push Inflation & Demand Pull Inflation

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Pre 1970s Post 1970s

KEYNESIAN SCHOOL MONETARISTIC SCHOOL

PRICE
INFLATION

COST-PUSH INFLATION DEMAND-PULL INFLATION

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KEYNESIAN SCHOOL DEMAND-PULL INFLATION

50
SUPPLY PRICE DEMAND

Ready to Pay Ready to Pay

50 Rs 50 Rs

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KEYNESIAN SCHOOL DEMAND-PULL INFLATION

65 50
SUPPLY PRICE DEMAND

Ready to Pay Ready to Pay Ready to Pay

65 Rs 65 Rs 65 Rs

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KEYNESIAN SCHOOL DEMAND-PULL INFLATION [ DEMAND > SUPPLY ]

65 50
SUPPLY PRICE DEMAND

Ready to Pay Ready to Pay Ready to Pay

65 Rs 65 Rs 65 Rs

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 P2 Cost Push Inflation & Demand Pull Inflation

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KEYNESIAN SCHOOL DEMAND-PULL INFLATION [ DEMAND > SUPPLY ]

60 50
SUPPLY PRICE DEMAND

Ready to Pay Ready to Pay

50 Rs 50 Rs
60

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KEYNESIAN SCHOOL DEMAND-PULL INFLATION [ DEMAND > SUPPLY ]

60 50
Not Changed
SUPPLY
SUDDENLY DROPPED
PRICE DEMAND

BOTTLENECK INFLATION
& Such situaHons arise due to
supply side hurdles, hazards
Ready to Pay Ready to Pay
or government policy
changes which have badly 50 Rs 50 Rs
impacted the Supply side. 60
[ STRUCTURAL INFLATION ]

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 P2 Cost Push Inflation & Demand Pull Inflation

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Pre 1970s
KEYNESIAN SCHOOL

PRICE
INFLATION

COST-PUSH INFLATION DEMAND-PULL INFLATION

[ DEMAND > SUPPLY ]

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KEYNESIAN SCHOOL COST-PUSH INFLATION

50
SUPPLY PRICE DEMAND

Ready to Pay Ready to Pay

50 Rs 50 Rs

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KEYNESIAN SCHOOL COST-PUSH INFLATION

55
50
COST
Increase
SUPPLY PRICE DEMAND

Ready to Pay Ready to Pay

50 Rs 50 Rs
55 55

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Pre 1970s
KEYNESIAN SCHOOL
PRICE
INFLATION

COST-PUSH INFLATION DEMAND-PULL INFLATION

Increase COST [ DEMAND > SUPPLY ]

Price rise can sustain only if Demand increases because

consumers are ready to of the extra purchasing
buy. power the consumer.

Cost-Push InflaHon is not a truly

independent theory of inflaHon.
MONETARISTIC SCHOOL Post 1970s

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 P3 WPI - Wholesale Price Index | How Inflation is
measured
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I O N
T
IN FLA

Price
&
GOODS SERVICES
Year

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INFLATION

Wholesale Price Index WPI CPI Consumer Price Index

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INFLATION

Wholesale Price Index WPI CPI Consumer Price Index

5000 Rs In our 6mes it used

to cost 1000 Rs Only

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INFLATION

Wholesale Price Index WPI CPI Consumer Price Index

5000 Rs In our 6mes it used

to cost 1000 Rs Only

BASKET PRICE IN OUR TIME

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INFLATION

Wholesale Price Index WPI CPI Consumer Price Index

In our 6mes it used

to cost 1000 Rs Only

BASKET PRICE IN OUR TIME CURRENT PRICE % INCREASE

1000 Rs 5000 Rs 400 %

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INFLATION

Wholesale Price Index WPI CPI Consumer Price Index

Base Year ( 2011-12 )

BASKET PRICE IN OUR TIME CURRENT PRICE % INCREASE
1000 Rs 5000 Rs 400 %

Basket is formed considering a Sample

or standard set of commodi6es
Represent various strata of the
economy.

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INFLATION

Wholesale Price Index WPI CPI Consumer Price Index

BASKET

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INFLATION

Wholesale Price Index WPI CPI Consumer Price Index

WPI considers only first point of bulk
sale in the domes6c market.

10 15 20

PRODUCER WHOLESALER RETAILER CONSUMER

Producer Price Wholesale Price Consumer Price

Measure Average
Price Level PPI WPI CPI
Producer Price Index Wholesale Price Index Consumer Price Index
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INFLATION

Wholesale Price Index WPI CPI Consumer Price Index

WPI considers only first point of bulk Micro-Level Policy Making
sale in the domes6c market.
Macro-Level Policy Making

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WPI - Wholesale Price Index

BASKET
697 COMMODITIES

Coal, Mineral Oils, Food Ar6cles, Non-Food

Fuel & Power Primary Ar6cles
Electricity Ar6cles, Minerals
Manufactured Products Cereals, Pulses, Fruits, Veggies,
Milk, Meat, Spices, etc
Sugar, Tea, Coffee, Chocolate, Fo o d P ro d u c t s , To b a c co,
Noodles, Corn Flakes etc Beverages, Tex6les, Leather etc Raw Co\on, Jute, Silk etc

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WPI - Wholesale Price Index 33.33 %

33.33 % 33.33 %

BASKET
697 COMMODITIES

Coal, Mineral Oils, Food Ar6cles, Non-Food

Fuel & Power Primary Ar6cles
Electricity Ar6cles, Minerals
Manufactured Products

Fo o d P ro d u c t s , To b a c co,
Beverages, Tex6les, Leather etc

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WPI - Wholesale Price Index 33.33 %

22.62

33.33 %
64.23 33.33 %
13.15

BASKET
697 COMMODITIES

Coal, Mineral Oils, Food Ar6cles, Non-Food

Fuel & Power Primary Ar6cles
Electricity Ar6cles, Minerals
Manufactured Products

Fo o d P ro d u c t s , To b a c co,
Beverages, Tex6les, Leather etc

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WPI - Wholesale Price Index

BASKET
697 COMMODITIES

13.15 % 22.62 %
Coal, Mineral Oils, Food Ar6cles, Non-Food
Fuel & Power 64.23 % Primary Ar6cles
Electricity Ar6cles, Minerals
Manufactured Products

Fo o d P ro d u c t s , To b a c co,
Beverages, Tex6les, Leather etc

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WPI - Wholesale Price Index Manufactured Products 64.23 %

13.15 % Fuel & Power 22.62 % Primary Ar6cles

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measured
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WPI - Wholesale Price Index Number of quota6ons used for

current WPI calcula6on is 8331

These prices do not include indirect taxes

in order to remove impact of fiscal policy

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WPI - Wholesale Price Index ( Current Price)

= X 100
( Base Price )

Elementary Price
Index

193.77
( Geometric Mean)

Elementary Price Index in calculated using JEVONS INDEX FORMULA

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WPI - Wholesale Price Index Manufactured Products 64.23 %

13.15 % Fuel & Power 22.62 % Primary Ar6cles

Elementary Price
Index
1 193.77
1

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Jevons Index formula

WPI - Wholesale Price Index

Laspeyre’s index formula
WPI Measures the change
in wholesale prices on a
monthly basis.

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Jevons Index formula

WPI - Wholesale Price Index

Laspeyre’s index formula
WPI Measures the change
in wholesale prices on a
monthly basis.

Base Year ( 2011-12 ) 100 100 100 100 100 100 100 100 100 100 100 100

Year ( 2022-23 ) 114 115 115 115 113 112 110 108 105 - - -

WPI is measured ‘point-to-point’ which means the index value in this month is calculated
with reference to the same month in the Base Year.

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WPI - Wholesale Price Index

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DEPARTMENT FOR PROMOTION OF

WPI
INDUSTRY AND INTERNAL TRADE Wholesale Price Index

( DPIT )

Till 2019
DEPARTMENT OF INDUSTRIAL POLICY
& PROMOTION ( DIPP )

( DIPP )
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 P4 CPI - Consumer Price Index

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Consumer Price Index

SERVICES SERVICES

GOODS GOODS GOODS

PRODUCER WHOLESALER RETAILER CONSUMER

Producer Price Wholesale Price Consumer Price

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Consumer Price Index

SERVICES SERVICES

& &
GOODS GOODS GOODS

PRODUCER WHOLESALER RETAILER CONSUMER

Producer Price Wholesale Price Consumer Price

Measure Average
Price Level PPI WPI CPI
Producer Price Index Wholesale Price Index Consumer Price Index
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CPI Consumer Price Index

CONSUMER

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CONSUMER

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 P4 CPI - Consumer Price Index

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Pan, tobacco and intoxicants

Clothing and footwear
Housing

Food & Beverages

CONSUMER

Fuel and light Miscellaneous

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CONSUMER
CONSUMPTION PATTERN

Food & Beverages 7 Days

Pan, tobacco and intoxicants 7 Days

Housing 1 Month

Fuel and light 1 Month

Clothing and footwear 1 Year

Miscellaneous 1 Year

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CONSUMER
CONSUMPTION PATTERN

Food & Beverages 7 Days

Pan, tobacco and intoxicants 7 Days

Housing 1 Month CONSUMPTION

DATA
Fuel and light 1 Month

Clothing and footwear 1 Year

Miscellaneous 1 Year

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CONSUMER
CONSUMPTION PATTERN

Food & Beverages

7 Days
Pan, tobacco and intoxicants

Housing 1 Month CONSUMPTION

DATA
Fuel and light 1 Month

Clothing and footwear 1 Year

Miscellaneous 1 Year

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CONSUMER
CONSUMPTION PATTERN

Food & Beverages

7 Days
Pan, tobacco and intoxicants

Housing CONSUMPTION
1 Month
DATA
Fuel and light

Clothing and footwear 1 Year

Miscellaneous 1 Year

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Food Items -> Shorter Reference Period Items of infrequent consumpRon -> Longer Reference Period
INTERNATIONAL PRACTICE

Food & Beverages

7 Days
Pan, tobacco and intoxicants
CONSISTENT

Housing CONSUMPTION
1 Month
DATA
Fuel and light

Clothing and footwear

1 Year
Miscellaneous

MODIFIED MIXED REFERENCE

PERIOD - MMRP
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DIFFERENT
CONSUMPTION PATTERN

Basket Size & kind of items in

the Basket can be highly varied
CONSUMPTION Choice of consumpRon
DATA Purchasing Power
CONSUMER

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DIFFERENT
CONSUMPTION PATTERN

Basket Size & kind of items in

the Basket can be highly varied
CONSUMPTION Choice of consumpRon
DATA Purchasing Power
CONSUMER
Socio-Economic DifferenRaRon

To tackle this situation

[ Homogeneous groups of
Consumers ]
SEGMENTATION

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CONSUMER SEGMENTATION

Urban Non-Manual Employee Industrial Worker Agricultural Labourers Rural Labourers

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CONSUMER SEGMENTATION

Urban Non-Manual Employee Industrial Worker Agricultural Labourers Rural Labourers

A person whose job involves Average working A person who is doing A person who does
the use of their knowledge, class individual agricultural occupaRons manual work in rural
rather than physical in the capacity of a areas in agricultural
strength. labour on hire. and/or non-agricultural
occupaRons in return
for wages

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CONSUMER SEGMENTATION

Urban Non-Manual Employee Industrial Worker Agricultural Labourers Rural Labourers

BASKET BASKET BASKET BASKET

Measure Average
CPI - UNME CPI - IW CPI - AL CPI - RL
Price Level

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CONSUMER SEGMENTATION

Urban Non-Manual Employee Industrial Worker Agricultural Labourers Rural Labourers

( 146 - 365 )
( 463 ) ( 260 ) ( 260 )

BASKET BASKET BASKET BASKET

Measure Average
CPI - UNME CPI - IW CPI - AL CPI - RL
Price Level
These Indexes are/ were compiled by Labour Bureau, Ministry of Labour and Employment - GOI
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CONSUMER
SEGMENTATION

Urban Non-Manual Employee Industrial Worker Agricultural Labourers Rural Labourers

Measure Average
CPI - UNME CPI - IW CPI - AL CPI - RL
Price Level

Dearness Allowances Dearness Allowances

Cost-of-living adjustment Allowance

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CONSUMER
SEGMENTATION

Urban Non-Manual Employee Industrial Worker Agricultural Labourers Rural Labourers

Measure Average
CPI - UNME CPI - IW CPI - AL CPI - RL
Price Level

Employees of some
foreign companies Manual workers and
working in India in employees of central and
service sectors. state governments.
Airlines Dearness Allowances Dearness Allowances
Banking Cost-of-living adjustment Allowance
CommunicaRons, etc

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CONSUMER
SEGMENTATION

Urban Non-Manual Employee Industrial Worker Agricultural Labourers Rural Labourers

Measure Average
CPI - UNME CPI - IW CPI - AL CPI - RL
Price Level

Determine
Revision
Dearness Allowances Dearness Allowances MINIMUM WAGE
Cost-of-living adjustment Allowance Agricultural labourers & Rural
Unskilled Employees

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CONSUMER
SEGMENTATION

Urban Non-Manual Employee Industrial Worker Agricultural Labourers Rural Labourers

Measure Average
CPI - UNME CPI - IW CPI - AL CPI - RL
Price Level
Segment Specific CPIs

Dr. C. Rangarajan CPI numbers catering to specific

segments of the populaRon can be
considered as parRal indices only.

2001

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CONSUMER
SEGMENTATION

Urban Non-Manual Employee Industrial Worker Agricultural Labourers Rural Labourers

Measure Average
CPI - UNME CPI - IW CPI - AL CPI - RL
Price Level
Segment Specific CPIs

These indices are not oriented to reflect a true

picture of the price behaviour and effect of price
fluctuaRons of various goods and services
consumed by the general populaRon in the
country, over a period of Rme.

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CONSUMER
SEGMENTATION

Urban Non-Manual Employee Industrial Worker Agricultural Labourers Rural Labourers

Measure Average
CPI - UNME CPI - IW CPI - AL CPI - RL
Price Level
Segment Specific CPIs
Dec 2010
( 2011-12 )

NSC Commission, therefore, CPI - R Rural

recommended for compilaRon of CPI for CPI - U Urban
rural and urban areas & NaRonal level CPI - C Combined
( National )

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CPI
Consumer Price Index

2016 1986-87 1986-87

CPI - UNME CPI - IW CPI - AL CPI - RL
Segment Specific CPIs

CPI - R Rural 2012

CPI - U Urban 2012
CPI - C Combined ( National ) 2012

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CPI
Consumer Price Index

Urban Rural Combined

CPI - U CPI - R CPI - C

BASKET BASKET BASKET

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 P4 CPI - Consumer Price Index

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Urban Rural Combined

BASKET BASKET BASKET

Food & Beverages 36.29 54.18 45.86 NOTE

Pan, tobacco and intoxicants 1.36 3.26 2.38 The basket of items
and their weighRng
Clothing and footwear 5.57 7.36 6.53 diagrams have been
Housing 21.67 - 10.07 prepared using the
M o d i fi e d M i xe d
Fuel and light 5.58 7.94 6.84 Reference Period
( MMRP )
Miscellaneous 29.53 27.26 28.32
100 100 100

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Urban Rural Combined

BASKET BASKET BASKET

Food & Beverages 36.29 54.18 45.86

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 P4 CPI - Consumer Price Index

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Urban
BASKET

Food & Beverages 36.29

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( Current Price)
= X 100
( Base Price )

2 4 200.00
5 166.66
Elementary Price
3
2 3 150.00
Index
3 4 133.33
150.40
6 8 133.33

5 6 120.00
( Geometric Mean)
3 4 133.33

3 5 166.66

2 3 150.00

3 5 166.66

Elementary Price Index in calculated using JEVONS INDEX FORMULA

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Urban
BASKET
Elementary Price
Food & Beverages 36.29 Index
150.40 1

Laspeyre’s index formula

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Urban
BASKET

Food & Beverages 36.29

Pan, tobacco and intoxicants 1.36

Clothing and footwear 5.57

Housing 21.67

Fuel and light 5.58

Miscellaneous 29.53
100
CPI - U =
Laspeyre’s index formula

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 P4 CPI - Consumer Price Index

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CPI - U
Urban
BASKET

Food & Beverages 36.29

Pan, tobacco and intoxicants 1.36

Clothing and footwear 5.57

Housing 21.67

Fuel and light 5.58

Miscellaneous 29.53
100

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CPI - U CPI - R CPI - C

Urban Rural Combined
BASKET BASKET BASKET

Food & Beverages 36.29 54.18 45.86

Pan, tobacco and intoxicants 1.36 3.26 2.38

Clothing and footwear 5.57 7.36 6.53

Housing 21.67 - 10.07

Fuel and light 5.58 7.94 6.84

Miscellaneous 29.53 27.26 28.32

100 100 100

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 P5 Inflation Tax & Inflation Gap

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INFLATION TAX

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INFLATION TAX

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 P5 Inflation Tax & Inflation Gap

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Es#mated Expenditures

Es#mated Receipts
( By Increasing Tax ) GAP
FISCAL DEFICIT

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INCREASE
TAX TAX
Es#mated Expenditures

Es#mated Receipts TAX

( By Increasing Tax ) GAP
FISCAL DEFICIT
TAX

TAX

TAX

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INCREASE
TAX TAX
Es#mated Expenditures

Es#mated Receipts TAX

( By Increasing Tax ) GAP
FISCAL DEFICIT
TAX

TAX

TAX

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INCREASE
TAX TAX
Es#mated Expenditures

Es#mated Receipts TAX

( By Increasing Tax )

TAX

TAX

TAX

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 P5 Inflation Tax & Inflation Gap

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Es#mated Expenditures

Es#mated Receipts
GAP
FISCAL DEFICIT

DEFICIT
FINANCING

External Aids External Borrowings Internal Borrowing Prin#ng Money

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TAX
Es#mated Expenditures

Es#mated Receipts TAX

GAP
FISCAL DEFICIT
TAX

Prin#ng Money
TAX

INFLATION
TAX

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 P5 Inflation Tax & Inflation Gap

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INFLATION TAX
Es#mated Expenditures

Es#mated Receipts INFLATION TAX

GAP
FISCAL DEFICIT
INFLATION TAX

Prin#ng Money
( Seigniorage ) INFLATION TAX
Profit made by the
government by issuing
currency INFLATION TAX

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Es#mated Expenditures

Es#mated Receipts

FISCAL DEFICIT

INFLATION
GAP

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 P6 Philips curve | NAIRU - Natural Rate of
Unemployment
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BILL PHILLIPS
ALBAN WILLIAM HOUSEGO PHILLIPS
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1861 to 1957 RELATION BETWEEN UNEMPLOYMENT AND THE RATE OF

CHANGE OF MONEY WAGE RATES IN THE UNITED
Wage Employment KINGDOM, 1861 - 1965
In 1950s he was going his doctoral
thesis at the London School of
Economics
He gave empirical evidences to prove
that InflaCon and Unemployment have
a stable and inverse relaConship.

BILL PHILLIPS PHILIPS CURVE

InflaCon

Unemployment

ALBAN WILLIAM HOUSEGO PHILLIPS

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 P6 Philips curve | NAIRU - Natural Rate of
Unemployment
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InflaCon

Unemployment

BILL PHILLIPS
ALBAN WILLIAM HOUSEGO PHILLIPS
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InflaCon

Unemployment

BILL PHILLIPS
ALBAN WILLIAM HOUSEGO PHILLIPS
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 P6 Philips curve | NAIRU - Natural Rate of
Unemployment
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Unemployment could be
reduced permanently at a cost
of slightly higher inflaCon

InflaCon

Unemployment

BILL PHILLIPS
ALBAN WILLIAM HOUSEGO PHILLIPS
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1958
InflaCon

PHILIPS CURVE Unemployment

During 1960s, this idea was among the

most important theories of modern
economics.

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 P6 Philips curve | NAIRU - Natural Rate of
Unemployment
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InflaCon

Unemployment

&

MILTON Friedman Edmund PHELPS

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Short Term High InflaCon

long term
People Will demand
Higher Wages
InflaCon

Companies can not pay

higher wages to all
workers

Unemployment Companies will start

firing

&

MILTON Friedman Edmund PHELPS

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 P6 Philips curve | NAIRU - Natural Rate of
Unemployment
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Short Term High InflaCon

long term
People Will demand
Higher Wages
InflaCon

Companies can not pay

higher wages to all
workers

Unemployment Companies will start

firing

Natural Rate of
Unemployment

&

MILTON Friedman Edmund PHELPS

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No MaZer, how much the inflaCon

Natural Rate of Unemployment is Natural rate of Unemployment
can not be reduced.

[ Max ]
Available Resources ECONOMY Output [ GDP ]
Technology
Capital
% Unemployed Labour

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 P6 Philips curve | NAIRU - Natural Rate of
Unemployment
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Short Term High InflaCon

long term
People Will demand
Higher Wages
InflaCon

Companies can not pay

higher wages to all
workers

Unemployment Companies will start

firing

Natural Rate of
Unemployment

&

MILTON Friedman Edmund PHELPS

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Short Term High InflaCon

long term
People Will demand
Higher Wages
InflaCon

Companies can not pay

higher wages to all
workers

Unemployment Companies will start

firing

Natural Rate of
Unemployment

NAIRU
Non AcceleraCng InflaCon Rate &
of Unemployment
MILTON Friedman Edmund PHELPS
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 P6 Philips curve | NAIRU - Natural Rate of
Unemployment
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Short Term High InflaCon

long term
People Will demand
Higher Wages
InflaCon

Companies can not pay

higher wages to all
workers

Unemployment Companies will start

firing

Natural Rate of
Unemployment

NAIRU
Non AcceleraCng InflaCon Rate &
of Unemployment
MILTON Friedman Edmund PHELPS
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Short Term
long term
InflaCon

NAIRU Unemployment

&

MILTON Friedman Edmund PHELPS

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 P7 FPI - Food Price Index | Inflation

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Food Ar6cles are Food Ar6cles are

included included

WFPI CFPI

Wholesale Food Price Consumer Food Price

Index Index
WPI CPI

WPI & CPI covers wide range

Limited to food of goods/ Services Limited to food
items items
WHY IT IS SO IMPORTANT TO HAVE
SEPARATE FOOD INDEX ?
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WHY IT IS SO IMPORTANT TO HAVE

SEPARATE FOOD INDEX ?

EVALUATE
ECONOMIC WELLBEING
Food is a major expenditure for
many HOUSEHOLDS in India

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 P7 FPI - Food Price Index | Inflation

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Food Ar6cles are Food Ar6cles are

included included

WFPI CFPI

Wholesale Food Price Consumer Food Price

Index Index
WPI CPI

WPI & CPI covers wide range

Limited to food of goods/ Services Limited to food
items items

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Food Ar6cles are Food Ar6cles are

included included

WFPI CFPI

Wholesale Food Price Consumer Food Price

Index Index
WPI CPI

WPI & CPI covers wide range

Limited to food of goods/ Services Limited to food
items items

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 P7 FPI - Food Price Index | Inflation

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Food Ar6cles are Food Ar6cles are

included included

WFPI CFPI

Wholesale Food Price Consumer Food Price

Index Index
WPI CPI

Manufactured Products Food & Beverages Housing

Primary Ar6cles Pan, tobacco and intoxicants Fuel and light

Fuel & Power Clothing and footwear Miscellaneous

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Food Ar6cles are Food Ar6cles are

included included

WFPI CFPI

Wholesale Food Price Consumer Food Price

Index Index
WPI CPI

Food Ar6cles Manufactured Products Food & Beverages Housing

Food Ar6cles Primary Ar6cles Pan, tobacco and intoxicants Fuel and light

X Fuel & Power Clothing and footwear Miscellaneous

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 P7 FPI - Food Price Index | Inflation

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Food Ar6cles are Food Ar6cles are

included included

WFPI CFPI

Wholesale Food Price Consumer Food Price

Index Index
WPI CPI

Manufactured Products Food & Beverages Housing

Primary Ar6cles Pan, tobacco and intoxicants Fuel and light

Clothing and footwear Miscellaneous

Food Ar6cles
Weighted Arithme6c Mean
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Food Ar6cles are Food Ar6cles are

included included

WFPI CFPI

Wholesale Food Price Consumer Food Price

Index Index
WPI CPI

Manufactured Products Food & Beverages Housing

Primary Ar6cles Pan, tobacco and intoxicants Fuel and light

Clothing and footwear Miscellaneous

Food Ar6cles
Weighted Arithme6c Mean
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 P7 FPI - Food Price Index | Inflation

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Food Ar6cles are Food Ar6cles are

included included

R
WFPI CFPI C

Wholesale Food Price Consumer Food Price U

Index Index
WPI CPI

Manufactured Products Food & Beverages

Primary Ar6cles
CPI - U CPI - R CPI - C
Food Ar6cles Urban Rural Combined
Weighted Arithme6c Mean
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CFPI
Food & Beverages R U C

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CFPI
Food & Beverages R U C

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Food Ar6cles are Food Ar6cles are

included included

R
WFPI CFPI C

Wholesale Food Price Consumer Food Price U

Index Index
WPI CPI

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 P7 FPI - Food Price Index | Inflation

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MONITORED
AP
FCI
Price SituaDon of Food Items

R
WFPI CFPI C

Wholesale Food Price Consumer Food Price U

Index Index

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 P8 HPI - House Price Index

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Is this the right time to buy

this stock ?

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Is this the right time to buy

this stock ?

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 P8 HPI - House Price Index

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Is this the right time to buy

House ?

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Is this the right time to buy

House ?

(HPI)
HOUSING PRICE INDEX
The sta(s(cal measure that reflects
changes in the value of residen(al
real estate over (me.

BROKER
Buyers Sellers
The HPI can be used by buyers and sellers to
get a sense of the current state of the housing
market and to make informed decisions about
whether to buy or sell a home.

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HOUSING PRICE INDEX ( H P I )

Policy Makers

Economists

Money Lenders

BROKER Sellers
Buyers

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The index is based on

The index is based on
the transac(ons of
the transac(ons of
proper(es in the
proper(es in the
primary and secondary
primary markets of
markets of different
ci(es HOUSING PRICE INDEX ( H P I ) Major ci(es in India.

NHB Residex RBI RBI’s Housing Price Index

[ 2007 ] [ 2007 ]
Indian Home Loan Indian Central Bank
Regulator
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 P9 SPI - Service Price Index | Inflation

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PRIMARY

SECONDARY

53.74 % TERTIARY
73,11,780

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PRIMARY
Experimental Service Price Index
The services sector is a significant contributor
TERTIARY
to the economy of India, accoun=ng for a
53.74 % large share of the country's gross domes=c
SECONDARY product (GDP) and employment.
SEPARATE PRICE INDEX

Chairman ABHIJIT SEN

WORKING GROUP SETUP TO REVISE THE WPI ( 1993-94 ) SERIES MEMBER, PLANNING COMMISSION

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Experimental Service Price Index

SEPARATE PRICE INDEX

1 8

RAILWAY SERVICE SECURITIES SERVICE

2
7
POSTAL SERVICE TELECOM SERVICE
3 6

BANKING SERVICE INSURANCE SERVICE

4 5
AIR SERVICE PORT SERVICE

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 P10 Inflation Targeting

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INFLATION
[ Extreme Form of Infla0on ]
[ ALERT ] Hyper Infla0on
Walking Infla0on

> 50 %

2% 4% 10 % 50 %

Creeping Infla0on Galloping Infla0on

[ GOOD ] [ DANGEROUS ]

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INFLATION
[ Extreme Form of Infla0on ]
[ ALERT ] Hyper Infla0on
Walking Infla0on

> 50 %

2% 4% 10 % 50 %

Creeping Infla0on Galloping Infla0on

[ GOOD ] [ DANGEROUS ]

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 P10 Inflation Targeting

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INFLATION
[ Extreme Form of Infla0on ]
[ ALERT ] Hyper Infla0on
Walking Infla0on

> 50 %

2% 4% 10 % 50 %

Creeping Infla0on Galloping Infla0on

[ GOOD ] [ DANGEROUS ]

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INFLATION
[ Extreme Form of Infla0on ]
[ ALERT ] Hyper Infla0on
Walking Infla0on

> 50 %

2% 4% 10 % 50 %

Creeping Infla0on Galloping Infla0on

[ GOOD ] [ DANGEROUS ]

2% 6%

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 P10 Inflation Targeting

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CPI - U CPI - R

CPI - C CPI - AL CPI - RL

CFPI - U WPI CPI - IW

CFPI - R
INFLATION TARGETING
CFPI - C WFPI
[ RANGE ]

INFLATION 2% 6%

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India started to follow the

process of ‘Infla0on Targe0ng’
since Feb 2015.
INFLATION TARGETING
CPI - C [ RANGE ]

INFLATION 2% 6%

RBI

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 P10 Inflation Targeting

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INFLATION TARGETING

In Sept 2013, Raghuram Rajan

appointed an expert commi_ee to
revise and strengthen the Monetary
Policy Framework under Urjit Patel
Patel.

HIGH INFLATION

2008 Average WPI - 7.5 % 2012 2013

Average CPI-IW - 10.1 %
Highest among G-20 Na0ons
RBI

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RBI CONSULT GOV

Focus only on 1 Objec0ve
Revised Every 5 Years

INFLATION TARGETING CPI - C 4% 2%

2014
Urjit Patel
STRICT FELEXIBLE
Sole concern of Central Along with the target of keeping
Bank is to keep Infla0on in Infla0on in the given Range,
the given Range. Central bank is also responsible
for other things such as:
Growth
Employment
Exchange Rates etc

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 P11 Headline Inflation vs Core Inflation

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HEADLINE CORE

INFLATION INFLATION

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INDEX
INFLATION

INFLATION

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INDEX
INFLATION FUEL FOOD

INFLATION FUEL FOOD

Highly VolaBle &

Transitory in Nature

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INDEX
INFLATION FUEL FOOD

INFLATION FUEL FOOD

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 P11 Headline Inflation vs Core Inflation

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INDEX
HEADLINE
INFLATION FUEL FOOD

INFLATION
CORE

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INFLATION

Till 2014 WPI Wholesale Price Index

HEADLINE
Since Feb 2015 CPI- C Consumer Price Index - Combined

HEADLINE
FUEL FOOD
INFLATION
It is the infla7on rate which is
most commonly reported in
media and headlines

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 P12 Base Effect | Inflation

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[ 2012 ]
Base Year 2013 2014 2015

100 Price Index

100
100
100
100
100
100
100
100
100
100
100

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[ 2012 ]
Base Year 2013 2014 2015

100 +10 110 +10 120 +10 130 Price Index [ Rela@ve on Base Year ]
100
10% 9% 8.3% InflaBon % [ RelaBve to Previous Year Index Value ]
100
100
Index Value Index Value
100
100
Current Year - Previous Year
X 100
100 Previous Year
100 Index Value
100
100
100
100

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 P13 STAGFLATION | Inflation

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STAGFLATION

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GDP
Available Resources ECONOMY Output
Raw Material
Technology When GDP is growing, it usually
Capital means that businesses are
Labour producing more.

% of Unemployed Workers Hire more workers

[ Higher Labour Cost ]
STARTS DECREASING

UNEMPLOYMENT
Businesses try to pass on
Due to less labor available the higher labor costs to
and wages may start to rise as consumers.
businesses compete to aMract
and retain workers.
INFLATION

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 P13 STAGFLATION | Inflation

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GDP INFLATION UNEMPLOYMENT

INCREASE INCREASE DECREASE

DECREASE DECREASE INCREASE

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GDP INFLATION UNEMPLOYMENT PHILIPS CURVE

InflaRon

INCREASE INCREASE DECREASE

DECREASE DECREASE INCREASE

Unemployment

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 P13 STAGFLATION | Inflation

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INCREASE
InflaRon

STAGFLATION

STAGNANT GDP INFLATION UNEMPLOYMENT

Growth
INCREASE INCREASE DECREASE

DECREASE DECREASE INCREASE

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GDP INFLATION UNEMPLOYMENT

INCREASE INCREASE DECREASE

DECREASE DECREASE INCREASE

STAGNANT
STAGFLATION ( / Decreasing )
INCREASE

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 P13 STAGFLATION | Inflation

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Oil price rise in STAGFLATION

internaRonal market
in 1970s

GDP
Available Resources ECONOMY Output
COST INCREASE Raw Material DECREASE
Increase in the cost of Technology
producRon for businesses Capital
- lead to higher prices for Labour
goods and services

reduced demand from

INFLATION consumers.
Economic Growth Slows down
INCREASE

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GDP INFLATION UNEMPLOYMENT

INCREASE INCREASE DECREASE

DECREASE DECREASE INCREASE

STAGFLATION DECREASE INCREASE INCREASE

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 P14 SKEWFLATION | Inflation

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SKEWFLATION

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Basket is formed considering a Sample
or standard set of commodi5es
Represent various strata of the
economy.
Economy

General price level

of goods and BASKET
services Overall Price

Decrease Increase

Defla5on Infla5on

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 P14 SKEWFLATION | Inflation

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Large number of commodi5es

BASKET
Overall Price

Decrease Increase

Defla5on Infla5on

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Large number of commodi5es

BASKET
Overall Price

Decrease Increase

Defla5on Infla5on

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 P14 SKEWFLATION | Inflation

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SKEWFLATION Large number of commodi5es

If the prices of certain goods or
services increase at a very high
rate as compared to overall rate
of infla5on. BASKET
Overall Price

Decrease Increase

Defla5on Infla5on

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 P15 Reflation vs Disinflation vs Deflation vs Inflation

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BASKET BASKET
PRODUCER WHOLESALER RETAILER CONSUMER

Basket of goods traded Basket of goods and

between wholesaler and services consumed by
Retailer. households.

Movement in the level Movement in the level

of Prices is measured of Prices is measured
by by

WPI CPI

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Price Index

Average Price Level

WPI / CPI

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 P15 Reflation vs Disinflation vs Deflation vs Inflation

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Average Price Level

WPI / CPI
There is a decline in the
rate of InflaPon

al

ON
er d TION
n DISINFLA

I
g e s an n

AT
FL
i n od a
e of go hout

IN
s DE F
a LAT

Price Index
c r e evel roug ION
I ce l
n th N
r i es T IO Dec
p vic y FL A re
ser nom IN price a s e i n
eco servi level of g g e n e r a l
c o
econ es throu ods and
omy ghou
t an
Year

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Average Price Level

WPI / CPI

IO N
FLAT
IN
O N
F LATI
DISINFLATION N IN
TIO
FLA
IN
IO N
N NFLAT DEFLATION
IO I
NF LAT
I

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DEFLATION If prices are falling,

consumers may delay
making purchases in
the hope of geRng a
beSer deal in the future

Prices of goods and services

DEMAND DECREASES PROFITS DECREASE
are falling.

INCREASED NPAs INCREASED

UNEMPLOYMENT RATE

REFLATION
In such a situaBon, Government intervenes and tries to increase the general price level of goods and
services in an economy by going for higher public expenditures, tax cuts and interest rate cuts.
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