Consider the following statements:1. The inflation in India is primari...
- Inflation refers to the rise in the prices of most goods and services of daily or common use, such as food, clothing, housing, recreation, transport, consumer staples, etc.
- Inflation measures the average price change in a basket of commodities and services over time.
- Inflation is indicative of the decrease in the purchasing power of a unit of a country’s currency. This could ultimately lead to a deceleration in economic growth.
- However, a moderate level of inflation is required in the economy to ensure that production is promoted.
- In India, inflation is primarily measured by two main indices — WPI (Wholesale Price Index) and CPI (Consumer Price Index) which measure wholesale and retail-level price changes, respectively. Hence, statement 1 is correct.
- Core inflation is the change in the costs of goods and services but does not include those from the food and energy sectors. This measure of inflation excludes these items because their prices are much more volatile. Hence, statement 2 is correct.
- It is important because it's used to determine the impact of rising prices on consumer income.
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Consider the following statements:1. The inflation in India is primari...
Statement 1: The inflation in India is primarily measured by using Wholesale Price Index (WPI) and Consumer Price Index (CPI).
Statement 2: The measurement of core inflation does not include the rising prices of the food and energy sector.
Explanation:
Statement 1: The inflation in India is primarily measured by using Wholesale Price Index (WPI) and Consumer Price Index (CPI).
- The Wholesale Price Index (WPI) measures the average change in prices of goods at the wholesale level in India. It includes a basket of commodities including food items, fuel, manufactured products, etc., and is primarily used to analyze inflation trends in the manufacturing and wholesale sectors.
- The Consumer Price Index (CPI) measures the average change in prices of goods and services consumed by urban and rural households. It includes a basket of goods and services such as food, fuel, housing, clothing, transport, etc., and is primarily used to analyze inflation trends at the retail level and its impact on consumers.
- Both WPI and CPI are important indicators of inflation in India, but they capture different aspects of the economy. WPI focuses on wholesale prices, while CPI focuses on retail prices. Therefore, statement 1 is correct.
Statement 2: The measurement of core inflation does not include the rising prices of the food and energy sector.
- Core inflation is a measure of inflation that excludes certain volatile components that can distort the overall inflation rate. It provides a better indication of underlying inflation trends.
- The rising prices of food and energy are often considered volatile and can be influenced by factors such as weather conditions, global commodity prices, etc. Therefore, core inflation excludes these components to provide a more stable measure of inflation.
- However, it is important to note that the definition of core inflation may vary across countries and institutions. In some cases, core inflation may exclude only the energy prices, while in others, it may also exclude food prices.
- In the context of India, the Reserve Bank of India (RBI) publishes a measure of core inflation known as the "CPI (C)" which excludes food and beverages from the CPI basket. This measure is used by the RBI to assess underlying inflationary pressures and formulate monetary policy.
- Therefore, statement 2 is also correct.
Conclusion: Both statement 1 and statement 2 are correct. The inflation in India is primarily measured using Wholesale Price Index (WPI) and Consumer Price Index (CPI), and the measurement of core inflation excludes the rising prices of the food and energy sector.
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