# Inflation Essay

2093 Words Feb 23rd, 2014 9 Pages
Macro economics
Project on
INFLATION

-SUBMITTED BY
CHIKKAM.SAI ALEKHYA
DANNY VARGHESE
DEEPAK SAKTHIVEL
DEEPTHI MOHAN
TABLE OF CONTENTS * Inflation * Measures of inflation * Measures of inflation in India * CPI Types * WPI * Calculation of WPI * New series of CPI * CPI Urban/Rural * How Inflation is related with GDP? * Relationship between broad money supply and WPI/CPI * Announcement of hike in DA for government employees cause inflation? * Impact of elections on inflation * Hypothesis testing for elections and inflation * References

INFLATION
An increase in the average level of prices of goods and services.
Primarily, two types of price indices
Here the CPI agricultural and CPI rural are overlapped.

Figure-1
WHOLESALE PRICE INDEX
Inflation in India is measured commonly measured using wholesale price index. Wholesale price index is the representation of basket of goods .It represents the price index. The price index represents the average price movement over time of a fixed basket of goods and services. In India WPI was calculated from the year 1939. WPI is widely used in government, banks, and industry and business circles. Usually the compilation and publishing of WPI is done by ministry of commerce and industry. The current base year is 2004-2005. The WPI consisted of basket of good divided into 3categories. They are Primary Articles, Fuel and power and manufactured products. The price index was calculated as the geometric mean of the price evaluation of the commodities in the basket. The choice of the base year is chosen as the year in which no abnormalities are there in the level of production. The base year now chosen is 2004-2005 with a basket of 676 commodities.

WPI vs. CPI

FIG.1. WPI – CPI Comparison
Here we are comparing WPI and CPI values from the year 2005 to 2012 and we reached a conclusion that in both WPI and CPI the rate of inflation is increasing. The gap between the WPI and CPI is because CPI includes the cost of services that is provided whereas WPI does not. The most important difference that CPI captures is that it

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