Why Retail Inflation is increasing?
Description
Why in News?
During
February, retail
inflation, as measured by the consumer
price index, touched a three-month high of
5%. Hereby discussing the concepts related to the inflation and
side-effects of rising retail inflation.
What is inflation?
Inflation is a rise in the general level of
prices of goods and services in an economy over a period
of time. When the general price level rises, each unit of currency
buys fewer goods and services. Consequently, inflation also reflects erosion in
the purchasing
power of money. Inflation measures the average price change in a basket of
commodities and services over time.
What is retail inflation or Consumer Price Index?
Consumer Price Index or CPI as it
is commonly called is an index measuring retail inflation in the economy by
collecting the change in prices of most common goods and services used by
consumers. Called market basket, CPI is calculated for a fixed list of items
including food, housing, apparel, transportation, electronics, medical care,
education, etc. Note that the price data is collected periodically, and thus,
the CPI is used to calculate the inflation levels in an economy. This can be
further used to compute the cost of living. This also provides insights as to
how much a consumer can spend to be on par with the price change.
|
Who
maintains Consumer Price Index in India? In India, there are four
consumer price index numbers, which are calculated, and these are as follows: ·
CPI for Industrial Workers (IW) ·
CPI for Agricultural Labourers
(AL) ·
CPI for Rural Labourers (RL) and ·
CPI for Urban Non-Manual
Employees (UNME). While the Ministry of
Statistics and Program Implementation collects CPI (UNME) data and compiles
it, the remaining three are collected by the Labour Bureau in the Ministry of
Labour.
How is CPI calculated (CPI
formula)? To calculate CPI, multiply 100
to the fraction of the cost price of the current period and the base period. CPI formula: (Price
of basket in current period / Price of basket in base period) x 100
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What are the main causes of Inflation?
The main causes of inflation in India have been
subject to considerable debates and discussions. These are some of the chief
reasons for the increase in prices:
·
High
demand and low production or supply of multiple commodities create a demand-supply
gap, which leads to a hike in prices.
·
Excess
circulation of money leads to inflation as money loses its purchasing power.
·
With
people having more money, they also tend to spend more, which causes increased
demand.
Also, note the following pointers:
·
Spurt
in production prices of certain commodities also causes inflation as the price
of the final product increases. This is called cost-push inflation.
· Increase
in the prices of goods and services is also a factor to consider as the
involved labour also expects and demands more costs/wages to maintain their
cost of living. This spirals to further increase in the prices of goods.
Reason for
rise in Retail Inflation recently
·
A major reason behind accelerating inflation has been the
rise in petrol and diesel prices for vehicles, which rose by 20.6% and
22.5%, respectively. Petrol and diesel prices have been rising on account of
higher oil price. The price of the Indian basket of crude oil stood at $67.4
per barrel as of 11 March, a little more than double the average price for
March 2020, which was at $33.4 per barrel. India imports the bulk of the oil
that it consumes.
·
Also, the central excise duty collected by the government on
petrol and diesel sold has gone up during the course of this financial year,
and now stands at Rs.32.90 per litre in case
of petrol and Rs.31.83 per litre in case of
diesel, respectively. This increase in petrol and diesel prices has added to
the overall increase in prices.
·
Higher prices for petrol and diesel increase the cost of
moving things from where they are produced to where they are consumed, and
hence, over a period of time have an impact on prices of everything else,
including food.
