It`s a dynamic disequilibrium process. It means a steady
Increase in the general price level over time due to demandpull & cost-push influences .
Demand–pull: Demand for an item has increased to a
point where the price is increased to
reach a new equilibrium on a supply
ex: if there is a toy many children want for christmas,
sellers may increase the price.
Cost -push: Price must be increased because the costs of
making the product or service has increased.
Ex: if there was a new tax on raw material A, any products
which use this raw material will have their price increased
relative to the tax increase.
Inflation calculation :
Consumer Price Index (CPI).
Wholesale Price Index (WPI).
Consumer Price Index (CPI)
The Consumer Price Index, or CPI, is defined as the monthly
measurement of consumer item prices of just about everything you
The Bureau of Labor Statistics (BLS) surveys the customer item price
changes in the retail prices of approximately 80,000 specific goods
and services, called the market basket.
cal : C P I = updated cost
base period cost
FOOD AND BEVERAGES (breakfast cereal, milk, coffee, chicken,
wine, full service meals, snacks)
HOUSING (rent of residence, bedroom furniture)
APPAREL (men's shirts and sweaters, women's dresses, jewelry)
TRANSPORTATION (new vehicles, airline fares, gasoline, motor
MEDICAL CARE (prescription drugs and medical supplies,
physicians' services, eyeglasses and eye care, hospital services)
RECREATION (televisions, toys, pets and pet products, sports
EDUCATION AND COMMUNICATION (college tuition,
postage, telephone services, computer software and accessories)
OTHER GOODS AND SERVICES (tobacco and smoking
products, haircuts and other personal services, funeral expenses).
Wholesale Price Index (WPI)
WPI is the index that is used to measure the change
in the average price level of goods traded in wholesale
In India, a total of 435 commodities data on price
level is tracked through WPI which is an indicator of
movement in prices of commodities in all trade and
It is also the price index which is available on a
weekly basis .
The Consumer Price Index is not viable to be used in
India because there is too much of a lag in reporting
the Consumer Price Index numbers.
Another debate points that contradicts the application
of Consumer Price Index is the fact that it is calculated
on a monthly basis while the Wholesale Price Index is
calculated on a weekly basis
Current inflation rate :
Reserve Bank of India says that the inflation is
expected to come down from this fiscal’s fourth
quarter, starting from January.
Current rate 7.50 percent.
Why is rupee losing its value
against US dollar?
Stock markets performance
Indian stock exchanges are highly depended and dominated
by foreign investors. When the economy is doing well and
stock markets are in better conditions than other countries’
bourses, foreign investors will be more eager to invest here
than anywhere else but if they are pulling the money out
from Indian markets, they are selling rupees that results in
rupee’s fall in value.
Another reason is inflation, which is very high in India now.
High inflation causes decrease in the purchasing power
against other currencies. This also results in Indian currency
Current account deficit
Current account deficit happened when a country’s total
import is higher than the total exports. This makes the
country, a net debtor to the rest of the world. A high
deficit indicates that country is spending more money
outside than it’s earning inside.
Last year, there were lots of corruption issues more and
more VIPs are going to prison daily. The Anna Hazare’s
campaign against corruption took the attention of the
global media, which affected negatively foreign investors’