Concept of “Inflation” – Wholesale Price Index and Consumer Price Index

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Inflation means to increase. In this context, it means increase in prices of commodities. The price increase is due to the difference between “supply” and “demand” for a given commodity. If the supply is more than demand, prices decline and if the demand is more, prices increase. In a developing country like India, the demand for most of the commodities will always be more than the supply. Hence “inflation” will always be experienced in developing markets.

The increase is constantly measured in all the countries. The items included for determining the prices would be different from country to country. For example, in India, essential commodities like sugar, kerosene, a loaf of bread etc. are included in the basket of commodities considered for calculation of “inflation”.  Different from this, in a developed country, items that are luxury items in a developing country would also be included. For example, automobile could be included. The increase is expressed in % terms. For example if the rate of inflation is 5%, this means that over a period of one year, the prices have increased by 5%. The details of inflation are published regularly in all leading dailies in the country.

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