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Focus: GS-III Indian Economy


  • Consumer Price Index (CPI), India’s benchmark inflation measure, grew at 6.9% in the month of July.
  • Headline inflation has been growing at more than 6%, the upper limit of RBI’s tolerance level, since December 2019.
  • March was the only exception. India’s other inflation measure, Wholesale Price Index (WPI), has been contracting since April 2020.

Wholesale and retail inflation are diverging once again

  • Food items have a share of almost 40% in the CPI basket. This is just 24% for WPI.
  • Therefore, food price hikes generate stronger tailwinds for CPI.
  • But the food components of CPI and WPI actually move very closely with each other.
  • Difference in the weightage of food items is not the only reason for divergence in CPI and WPI.
  • A comparison of non-food components of CPI and WPI brings out this fact clearly.
  • WPI is focused on capturing producer costs, while CPI is representative of the average consumer basket of an Indian household.
  • The CPI basket is decided after the National Statistical Office’s consumption expenditure surveys.
  • CPI has components such as housing and recreation. WPI has crude petroleum and engineering goods

Inflation Expectations

  • Inflation expectations of households are still high, although Inflation expectations of households have come down compared to what they were six-seven years ago.
  • They are significantly above RBI’s upper band of 6%.
  • RBI data also shows that trajectory of current and future inflation expectation for households has been almost identical in India.

-Source: Hindustan Times

December 2023