Global Uncertainties

As per the latest ‘FAO food price index’ food inflation showed an uptick in July after a continuous decline since April 2022.

Termination of Black Sea grain initiative disrupted the supply of wheat the supply of wheat and sunflower oil.

Domestic Disruption

Interruption in the supply chian of white fly disease in kolar district of Karnataka and the swift arrival of Mansoon in North India Caused a surge in Tomato prices.

Tur dal Spiked due to deficient production.

Inflation: Inflation refers to the general increase in the price level of goods and services in an economy over a period of time.

In other words, it's the decrease in the purchasing power of money, which means that the same amount of money can buy fewer goods and services compared to before.

There are several causes and types of inflation:

Demand-Pull Inflation: This type of inflation occurs when the demand for goods and services exceeds their supply. When demand outpaces supply, businesses may increase prices to capitalize on the high demand.

Cost-Push Inflation: Cost-push inflation is driven by increases in the costs of production, such as rising wages, higher raw material costs, or increased taxes. These cost increases are passed on to consumers in the form of higher prices.

Built-In Inflation: Also known as wage-price inflation, this occurs when workers demand higher wages to keep up with rising prices. In response, businesses raise prices to cover the increased labour costs, creating a cycle of rising wages and prices.

Monetary Inflation: This type of inflation is caused by an increase in the money supply within an economy. When there is more money in circulation, each unit of currency becomes less valuable, leading to higher prices.

Core Inflation: "Core inflation" refers to a measure of inflation that excludes certain volatile items from the basket of goods and services used to calculate consumer price indices.

The purpose of excluding these volatile items is to get a clearer picture of underlying inflation trends, as volatile factors like food and energy prices can be influenced by short-term supply shocks that might not reflect the broader inflationary pressures in the economy.

In India core inflation excludes energy and food costs.

Consumer Price Index: The Consumer Price Index (CPI) in India is a measure that tracks changes in the average retail prices of a basket of goods and services consumed by households.

It serves as an important indicator of inflation and is used to monitor price movements in the economy.

The CPI is calculated for various categories, including different states and union territories, urban and rural areas, and specific groups such as industrial workers and agricultural laborers.

CPI in India is calculated based on the following categories:

CPI Urban: This index represents the price movements in urban areas and covers a variety of goods and services consumed by urban households.

CPI Rural: This index tracks price changes in rural areas and reflects the consumption patterns of rural households.

CPI Combined: The combined index is a weighted average of the urban and rural indices, reflecting the overall inflation situation in the country.

The CPI is calculated on a monthly basis and is released by the Central Statistics Office (CSO) of the Ministry of Statistics and Programme Implementation, Government of India.

The base year for the CPI in India was revised to 2012 (CPI 2012) from the earlier 2010 base year.

The CPI 2012 uses a broader and more updated consumption basket, reflecting changes in consumer preferences and spending patterns over time.

The CPI provides insights into the changing cost of living for households and helps policymakers, businesses, and the general public understand inflation trends and their impact on purchasing power.

Explain the term Inflation and its types. Also, shed light on the Consumer price index in India.