What is CPI: -
CPI (Consumer Price Index) is a measure of the average change in prices paid by
consumers for goods and services over time. It is used to track inflation by analysing the
price movement of a fixed basket of goods and services, such as food, housing, clothing,
transportation, healthcare, and education. The National Statistical Office (NSO) under the
Ministry of Statistics and Programme Implementation (MoSPI) publishes data of CPI.
Types of CPI in India
India uses different versions of CPI to reflect price changes for different segments of the
population:
• CPI for Industrial Workers (CPI-IW): Tracks inflation for industrial workers and is
used for wage adjustments.
• CPI for Agricultural Labourers (CPI-AL): Measures inflation for agricultural
labourers, with a focus on rural price changes.
• CPI for Rural Labourers (CPI-RL): Focuses on rural labourers and is used to
analyse inflation in rural areas.
• CPI (Rural, Urban, Combined): A broader index that measures inflation separately in
rural and urban areas and also provides a combined figure for the whole country.
How CPI Affects Inflation in India?
Inflation is the rate at which the general level of prices for goods and services rises, reducing
purchasing power. CPI is a key indicator of inflation in India because it measures changes in
consumer prices. Mainly CPI combined is used by RBI to set its monetary policy.
RBI’s target inflation range (set under the Monetary Policy Framework) is 4% ± 2% (i.e., between
2% and 6%).
When Inflation is High (CPI is above When Inflation is Low (CPI is below
Area
6%) 2%)
RBI raises interest rates, making
RBI’s Interest Rate (Repo RBI lowers interest rates, making
loans (home, car, business)
Rate) loans cheaper.
expensive.
Buying Power (Purchasing Your money buys fewer things Your money value stays stable as
Power) because prices are rising. prices are steady.
Savings & Fixed Deposits Savings lose value as prices rise Savings hold value better because
(FDs, Bonds) faster than interest earned. inflation is low.
Stock markets may fall because
Stock Market Stock markets stay stable or rise as
businesses face higher costs and
(Investments) businesses grow.
interest rates.
Government Decisions Government may cut taxes or give Government may increase taxes or
(Taxes & Subsidies) subsidies to control rising prices. reduce subsidies if needed.
Salaries may increase as inflation is Salary hikes may be slower since
Salary & Wages
high and living costs rise. prices are stable.
Main Source for Calculation of CPI in India
The Consumer Price Index (CPI) in India is compiled and published by the National
Statistical Office (NSO), under the Ministry of Statistics and Programme
Implementation (MoSPI).
The data for CPI calculation is collected from:
1. Retail Markets: Price data is gathered from various rural and urban markets across
India.
2. Household Expenditure Surveys: The base for CPI is determined using consumer
expenditure surveys conducted by the NSO.
3. Government Departments & Agencies: Some sector-specific data (like fuel and
electricity prices) come from regulatory bodies and government agencies.
Conclusion
CPI plays a crucial role in tracking and controlling inflation in India. The RBI, government, businesses,
and investors all rely on CPI inflation data to make economic decisions. A moderate inflation level
(around 4%) is considered ideal for economic growth, while excessive inflation or deflation can be
problematic for the economy.
