Updated Apr 13, 2022

What is The Consumer Price Index (CPI)?

What is The Consumer Price Index (CPI)?

Inflation is measured by the Consumer Price Index (CPI), which is a measurement of changes in the prices of a range of consumer products and services that are purchased by individuals. The Consumer Price Index (CPI) is a numerical assessment based on the rates of a selection of representative products, the costs of which are collected on a regular basis. A change in the level of prices at the consumer level is captured by the CPI. The Wholesale Price Index keeps track of price fluctuations at the producer level (WPI). When compared to the WPI, the CPI is better at capturing changes in the pricing of services.

Types of CPI

• CPI for Industrial Workers (CPI-IW)

This index attempts to capture the changes in the prices of a set basket of products and services that are used by industrial workers over time. Its intended audience would be a typical working-class family from any of the seven sectors of the economy, which include everything from factories to mines to plantations to motor transportation and ports, railroads to energy production and distribution. The Labour Bureau has produced this list.

• Agricultural Labourers' Consumer Price Index (CPI-AL)

Using this information, the Labour Bureau may update the minimum pay for agricultural labour in each state.

• CPI-RL

The Labour Bureau also compiles the Consumer Price Index for Rural Labourers.

• Urban Non-Manual Employees (CPI-UNME)

They are a group of people who work in cities and are not required to do manual labour. In this case, the data is compiled by the Central Statistics Office (CSO), which is currently known as the National Statistical Office (NSO). The governmental organisation that reports to the Minister of Statistics and Program Implementation.

Uses of CPI

Because of its multiple uses, the CPI touches practically every citizen. Here are a few examples:

• As a business indicator -A common measure of inflation, the CPI, is also used to assess the success of the fiscal policy. It informs government, business, labour, and private people on developments in the nation's economy and helps them make economic choices.

• It deflates other economic series -It deflates other economic series. The CPI is used to modify other financial series for price fluctuations. These include sales volumes and hourly and weekly incomes.

How is the CPI calculated?

By comparing the prices of a common basket of goods and services to those that were prevalent during the same time the previous year, the Consumer Price Index, often known as the CPI, analyses the price fluctuations of a common basket of goods and services.

The following is the formula for computing CPI:

Calculate the Consumer Price Index (CPI) as (Cost of a basket of goods and services in a given year divided by Cost of commodity market in a base year) x 100

Need for CPI in India

To comprehend the price fluctuation of different commodities and to maintain tabs on inflation, the Reserve Bank of India and other economic agencies examine the CPI. The Consumer Price Index (CPI) is also a useful tool for determining the actual worth of wages, salaries, and pensions, the buying power of a country's currency, and the effectiveness of price regulation measures.

Data is collected by economists by polling families about their purchasing habits, the most frequently bought products, and their daily expenditures.

Who is responsible for maintaining the CPI in India?

Various consumer price index numbers are calculated in India; the four most often used figures are as follows:

• Industrial Workers' Consumer Price Index (IW)
• Agricultural Laborers' Consumer Price Index (CPI) (AL)
• CPI for Rural Laborers (RL)
• CPI for Non-Manual Workers in Cities (UNME).

CPI (UNME) data is collected and compiled by the Ministry of Statistics and Program Implementation. At the same time, data for the other three indicators are gathered and compiled by the Labour Bureau of the Ministry of Labour.

Conclusion

Retail inflation is measured by the Consumer Price Index (CPI), which takes into account price changes for the most common products and services consumed by customers. It is possible to compute the consumer price index (CPI) by adding up the prices for a predetermined set of goods and services such as food, housing, clothing, and transportation, as well as technology, health care, and education. Note that the CPI is utilised to determine an economy's inflation levels since pricing data is gathered on a regular basis. Use this information to calculate the cost of living. In addition, it shows how much a customer may pay to keep up with the price increase. Keep in mind that the Consumer Price Index (CPI) differs from the Wholesale Price Index (WPI), which measures inflation on a wholesale scale.