Its interesting to note that one of the most popularly spoken word, 'inflation' is hardly understood by many. It may be the hot topic on a chai & samosa evening, for essays & debates in colleges; it even finds its way into kitty party discussions where women fret about how costly their grab & grub has turned, but the true significance of inflation is often bypassed. Even I was naive to think that if Feb'09 figures show inflation at 4.39%, a drop from Jan's 5.07% & a bigger drop from August '08's peak point of 12.91%, then why is it that I ain't finding any drop in prices today in any of the essential commodities. What I pen down today is what I came across in an attempt to clear my cobwebs in this regard.
Inflation is calculated Year on Year. So if the inflation now is 5%, that means that the cost of Rice, Oil, etc will cost 5% more than it did exactly one year ago. So if inflation comes down, it means that the Rate at which the prices are increasing has come down. In order for you to observe a drop in prices, the inflation has to be a negative number which would then be known as 'deflation'.
The Indian System of calculating inflation is clearly deceiving with respect to the fact that the media nor the politicians have ever made a genuine attempt at making the aam junta even remotely aware of the true inflation statistics or its significance. It is today a mere tool in the hands of politicians to churn the vote banks & the press uses it in large fonts to sell their paper.
In India inflation is calculated using WPI(wholesale price index)where the price of items at the wholesale market is considered.....which is rudimentary & can't provide accurate result as out of the 435 items listed 100 or more than 100 aren't significant from consumption point of view.The questions that haunt me now is as to why can't we switch over to CPI(Customer Price Index)where the actual price paid by the customer is taken into account for measuring inflation...that will provide a correct measure of inflation
Inflation is calculated Year on Year. So if the inflation now is 5%, that means that the cost of Rice, Oil, etc will cost 5% more than it did exactly one year ago. So if inflation comes down, it means that the Rate at which the prices are increasing has come down. In order for you to observe a drop in prices, the inflation has to be a negative number which would then be known as 'deflation'.
The Indian System of calculating inflation is clearly deceiving with respect to the fact that the media nor the politicians have ever made a genuine attempt at making the aam junta even remotely aware of the true inflation statistics or its significance. It is today a mere tool in the hands of politicians to churn the vote banks & the press uses it in large fonts to sell their paper.
In India inflation is calculated using WPI(wholesale price index)where the price of items at the wholesale market is considered.....which is rudimentary & can't provide accurate result as out of the 435 items listed 100 or more than 100 aren't significant from consumption point of view.The questions that haunt me now is as to why can't we switch over to CPI(Customer Price Index)where the actual price paid by the customer is taken into account for measuring inflation...that will provide a correct measure of inflation
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