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Retail Inflation

Why is it in the news?

  • India’s retail inflation recently decreased to a three-month low of 5.1%.

About Retail inflation  

  • Retail inflation, also known as Consumer Price Index (CPI) inflation, is a measure of the average change in prices paid by urban and rural consumers for a basket of goods and services over time.
  • The Consumer Price Index (CPI) is calculated based on a fixed basket of goods and services that represent the typical consumption pattern of households. This basket may be adjusted periodically by the government to reflect changes in consumer preferences and spending habits.
  • CPI-based inflation, or retail inflation, indicates the rate at which the prices of these goods and services are increasing or decreasing over time, providing insights into changes in the cost of living for consumers.
  • The National Statistical Office (NSO), under the Ministry of Statistics and Programme Implementation (MoSPI), is responsible for compiling CPI data for different sectors, including Rural, Urban, and Combined sectors. This data is collected through regular surveys and is released on a monthly basis, offering up-to-date information on inflation trends across various segments of the population.

Significance of Retail Inflation

  • Retail inflation serves as a crucial barometer of inflationary pressures within an economy.
  • It is a key tool for monitoring price stability, as sustained high inflation rates can erode the purchasing power of consumers and disrupt economic activity.
  • The Reserve Bank of India (RBI) utilizes CPI (Combined) as a benchmark for its monetary policy tools, such as the Repo Rate and Reverse Repo Rate, to achieve its inflation targets and maintain price stability.
  • Additionally, retail inflation provides insights into consumer purchasing power and the overall cost of living, influencing wage negotiations and social welfare policies.
Other Types of Inflation

·       Headline Inflation: This measures the total inflation within an economy and includes commodities such as food and energy prices. Headline inflation, often expressed through the Wholesale Price Index (WPI), can be more volatile and prone to inflationary spikes.

·       Core Inflation: Core inflation excludes the prices of food and energy sectors from the CPI basket due to their volatility. It provides a more stable measure of underlying inflationary trends, allowing policymakers to gauge long-term inflation dynamics accurately.

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