Annual consumer inflation in India declined to 2.33 percent in November, 2018 from an upwardly revised 3.38 percent in October, 2018 and below market expectations of 2.8 percent. This is the lowest inflation rate since June, 2017 as food prices fell the most since the series began in 2012. In 2013, the Consumer Price Index (CPI) replaced the wholesale price index (WPI) as the main measure of inflation.
Recent Developments Government changes the base years for GDP and retail inflation calculation
Urjit Patel Committee on Inflation The ‘Expert Committee to Revise and Strengthen the Monetary Policy Framework’, headed by RBI Deputy Governor Urjit R Patel submitted its report to RBI Governor Dr. Raghuram Rajan. The main objective of the committee was to recommend what needs to be done to revise and strengthen the current monetary policy framework with a view to making it transparent and predictable. Some of the major recommendations of the Urjit Patel committee were-
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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. This implies that:
Adverse Impacts of Inflation |
Favourable Impacts of Inflation |
Inflation causes decrease in the real value of money and other monetary items over time. |
Inflation ensures that the central banks adjust the interest rates. |
Inflation causes uncertainty over future; this may discourage investment and savings. |
Inflation encourages non-monetary investment. |
High inflation may lead to shortages of goods if consumers begin hoarding out of concern that prices will increase in the future. |
During very low inflation, an economy may be stuck in a recession. Arguably targeting a higher rate of inflation can enable a boost in economic growth. |
Indices of Inflation
There are several ways to measure inflation such as on the basis of population coverage, the inflation indices are developed to understand the levels of inflation for certain sets of population such as consumers, producers, retailers, wholesalers, etc.
There are several popular inflation index reports that investors and economists follow: