Food inflation in India eased to a nine-month low of 7.87% in June, whereas overall inflation in June stood at 6.09% compared to 5.84% in March. But what is inflation? What do the terms WPI and CPI that you keep hearing in the news mean? Let’s break it down and understand it.
Crux of the Matter
Eased Food Inflation
The government released data on inflation after a gap due to Covid-19 lockdown. The indicators say that food inflation eased to a nine-month low of 7.87% in June and headlines inflation in June stood at 6.09% which is higher than 5.84% in March. Despite lower food inflation, headline inflation remained higher due to high inflation in items like fish and meat (16.2%), oils and fats (12.3%), pulses (16.7%) as well as by pan, tobacco, intoxicants (9.7%) and personal care services (12.4%).
What Is Inflation?
Inflation means a rise in the price of a commodity in the market. Inflation negatively affects the consumers as it decreases the consumers’ purchasing power. However, a prolonged period of high inflation in any commodity also affects the producers. In that case, the income of producers decreases, and operational cost increases resulting in losses or reduced income for producers. Moreover, a scenario of reducing prices is called deflation.
Understanding CPI and WPI
Consumer Price Index (CPI) is a benchmark index for calculating inflation in an economy. CPI measures the average change in prices over time that consumers pay for a basket of goods and services for household consumption. CPI basket Includes transportation, food, medical care, recreational activities, housing, apparel, education, and other goods and services.
Earlier, India used the Wholesale Price Index (WPI) index to calculate inflation. WPI is an indicator of price changes in the wholesale market – includes only the basket of Goods. It comprises three major elements: Primary Articles (22.62% of total weight), Fuel and Power (13.15%), and Manufactured Products (64.23%). WPI declined to 1.81 % in June. It fell from a 4.5 year high of 3.21%.
Food Surplus In India
Food Corporation of India, State government agencies, and the National Agricultural Cooperative Marketing Federation of India confirmed having current grain stock higher than the buffer and strategic norms. It means the government is having surplus grain to extend food distribution aid for poor people. The stocking norm of rice is 13.6 million tonnes while for wheat it is 7.5 million tonnes as on April 1. Stocking norms refer to the level of stock in the Central Pool that is sufficient to meet the operational requirement of foodgrains and exigencies at any point in time.
- RBI was conceptualized as per the guidelines, working style and outlook presented by Dr. B.R. Ambedkar in his book titled “The Problem of Rupee – Its origin and its solutions” and presented to the Hilton Young Commission. Eventually, Central Legislative Assembly passed these guidelines as the RBI Act 1934.
- Rice Vaughan was a seventeenth-century lawyer and economist known for writing a seminal work on economics and currencies entitled A Discourse on Coins and Coinage. This book contains the earliest reported research in the area of price level changes. Hence, Vaughan can be considered a forerunner of price index research but his analysis did not actually involve calculating an index.
- The Price Revolution was a series of economic events that occurred between the second half of the 15th century and the first half of the 17th century, and most specifically linked to the high rate of inflation that occurred during this period across Western Europe. Prices rose on average roughly sixfold over 150 years.