How do you measure inflation

							How do you measure inflation?
Inflation is one of the biggest stories of recent weeks, and has received
a great deal of attention from the media and politicians. At the same
time, inflation is an economic problem that the average person meets on a
daily basis in terms of higher prices, particularly of food products.

How is inflation measured?

In India, there are two broad measures of inflation - based on the
consumer price index (CPI) and based on the wholesale price index (WPI).
Of the two, the latter has a higher profile because it is measured every
week. When you read about inflation rising to 7%, it is probably
referring to inflation based on WPI.

WPI is based on the wholesale prices of 435 items ranging from
agricultural commodities like wheat, rice, groundnuts etc to manufactured
products like steel, cement etc. A single index number is calculated
based on those prices, and the inflation rate is calculated by comparing
the most recent index number with that of a year ago.

What is the government going to do about inflation?

The government has taken some quick steps like trying to curb exports in
sensitive commodities and reduce the cost of imports. The is done because
exports reduce domestic supply adding to the pressure on prices .
Therefore, the government has already banned the export of cement and
non-basmati rice and may ban other commodity exports later.

RBI has also taken action by raising rates, which will reduce liquidity
and the total demand in the economy that will reduce the pressure on
prices.

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