Inflation

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Inflation

  1. 1. Business Communication - Inflation & Index Pranay Veer
  2. 2. Meaning!!! General rise in the price level Fall in the purchasing power of money Too much money chasing too few goods It becomes harmful once it goes out of control It occurs under the volume of money increases faster than the available supply of goods
  3. 3. Types of Inflation - Causes Demand pull Inflation: Aggregate demand > Aggregate supply of goods and services  Prices of goods and services rise. Cost push inflation: Cost of production  Rise in the prices of factors of production Prices of goods and services
  4. 4. How is it Measured? Consumer Price Index Wholesale Price Index
  5. 5. CPI - Consumer Price Index It measures changes in the price level of consumer goods and services purchased by households. Price of goods bought by consumers It tracks the prices of a specified basket of consumer goods and services, providing a measure of inflation.COST OF LIVING INDEX This actually measures the increase in price that a consumer will ultimately have to pay for Countries:  USA , China, Australia, etc.
  6. 6. Wholesale Price Index (WPI) WPI was first published in 1902  Replaced by most developed countries by the CPI in the 1970s WPI is the index that is used to measure the change in the average price level of goods traded in wholesale market. It focuses on the price of goods traded between corporations Countries: India, Philippines
  7. 7. Composition of WPI(in India)Weight = 100%1. Primary articles (wt.=20.12%) - Cereals, pulses, Fruits and vegetables, egg, oil etc.2. Fuel power, Light and Lubricants (wt.=14.91%)  Mineral Oil, Electricity, Coal Mining3. Manufactured Products (wt. = 64.57%)  Sugar, edible oils, textiles, chemicals, iron & steel, machinery, transport equipment, etc
  8. 8. Basis & Facts Base Year: 2004-05 Data Release: Monthly basis No. of commodities: 674 Current Inflation rate: 6.55% (Jan 12)  2-year low
  9. 9. Inflation Rate
  10. 10. CPI – India India’s first ever annual inflation rate, based on the consumer price index (CPI) Rate -7.65%, January 2012 Rural retail inflation - 7.38% Urban inflation rate - 8.25% Consumer Price Index (CPI) - Introduced a year ago Exist alongside the prevailing Wholesale Price Index (WPI)
  11. 11. CPI Major Groups CPI data tracks retail prices in five major Groups  Food, beverages and tobacco;  Fuel and light;  Housing;  Clothing, bedding and footwear  Miscellaneous The CPI also reflects price movements in the services sector (55%) Base Year: 2010
  12. 12. CPI Facts CPI which took into account the consumption patterns of all segments of the population. CPI is 1% higher than the Wholesale Prices Index. Help the Reserve Bank take effective monetary policy steps to deal with inflation
  13. 13. CPI Index Preparation Prepared by the Ministry of Labour. CPI will be in addition to the three retail price indices:  Agricultural laborers  Rural laborers  Industrial workers New CPI - Ministry of Statistics and Program Implementation (MOSPI) Eventually expected to replace the Wholesale Price Index (WPI) as the benchmark inflation.
  14. 14. Impact of Inflation Rising food prices Commodity prices Essential goods prices Expensive borrowing Impact on stock markets The rich get richer and poor get poorer Loss to fixed income earners Loss to wage earners Economic growth

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