Inflation indices(CPI, WPI, PPI, Core)


Consumer Price Index

The consumer price index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care.

The CPI is calculated by taking price changes for each item in the predetermined basket of goods and averaging them; the goods are weighted according to their importance.

Consumer Price Indices (CPI) measure changes over time in general level of prices of goods and services that households acquire for the purpose of consumption.

CPI is widely used as a macroeconomic indicator of inflation, as a tool by governments and central banks for inflation targeting and for monitoring price stability, and as deflators in the national accounts. CPI is also used for indexing dearness allowance to employees for increase in prices. CPI is therefore considered as one of the most important economic indicators.

Wholesale Price Index

Wholesale Price Index (WPI) represents the price of goods at a wholesale stage i.e. goods that are sold in bulk and traded between organizations instead of consumers.

WPI is used as a measure of inflation in some economies. WPI is used as an important measure of inflation in India. Fiscal and monetary policy changes are greatly influenced by changes in WPI. In the United States, Producer Price Index (PPI) is used to measure inflation. WPI is published by the Office of the Economic Adviser in Ministry of Commerce & Industry.

Producer Price Index

The Producer Price index (PPI) is a family of indexes that measures the average change in selling prices received by domestic producers of goods and services over time. PPIs measure price change from the perspective of the seller and differs from other indexes, such as the Consumer Price Index, that measure price change from the purchaser's perspective. US uses PPI as a measure of inflation. Its importance is being undermined by the steady decline in manufactured goods as a share of spending.

Headline Inflation and Core Inflation

Headline inflation is a measure of the total inflation within an economy, including commodities such as food and energy prices (e.g., oil and gas), which tend to be much more volatile and prone to inflationary spikes.

On the other hand, "core inflation" (also non-food-manufacturing or underlying inflation) is calculated from a price index minus the volatile food and energy components.

Headline inflation may not present an accurate picture of an economy's inflationary trend since sector-specific inflationary spikes are unlikely to persist.Core inflation includes only WPI of Non-food manufacturing industries.

Cost of Living Index

The cost of living is the cost of maintaining a certain standard of living, and is defined with reference to a basket of goods and services. COL Index rises up as the cost of the goods in the basket rises. An index value of 105 indicates that the cost of living is five percent higher than in the base year.

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