Inflation India
1. What is Inflation?
- Definition: Sustained rise in the general price level of goods & services, eroding purchasing power.
- Measured by: CPI (Consumer Price Index), WPI (Wholesale Price Index), GDP-Deflator.
- Inflation Rate Formula:
(Current Index – Previous Index) ÷ Previous Index × 100
2. Types of Inflation
| Type | Trigger |
|---|---|
| Demand-Pull | Aggregate demand > aggregate supply |
| Cost-Push | Rise in input costs (oil, wages, taxes) |
| Built-in | Wage-price spiral |
| Creeping | 1–3 % annually (healthy) |
| Walking | 3–10 % |
| Galloping | > 10 % |
| Hyper | > 50 % per month |
3. Key Price Indices in India
| Index | Agency | Base Year | Items | Weight (Food) | Use |
|---|---|---|---|---|---|
| CPI-Combined (Rural+Urban) | NSO (MoSPI) | 2012 | 448 | 45.86 % | RBI’s inflation target |
| WPI | Office of Economic Adviser (DPIIT) | 2011-12 | 697 | 24.4 % | Tracks wholesale prices |
| GDP Deflator | MoSPI | 2011-12 | All economy | — | Broadest measure |
4. Inflation Targeting Framework
- Flexible Inflation Targeting (FIT) adopted 20 Feb 2015 (RBI-GoI Agreement).
- Effective: 5 Aug 2016 (Amended RBI Act, Section 45ZB).
- Target: 4 % CPI-Combined ± 2 % band (2–6 %).
- Reviewed every 5 years; current period 2021-26.
- Monetary Policy Committee (MPC): 6 members; 3 from RBI, 3 GoI nominees; meet at least 4 times a year.
5. Historic Inflation Milestones
| Year | Event | Peak Rate |
|---|---|---|
| 1965-67 | Drought & war | 13.9 % |
| 1973-74 | Oil shock | 25.2 % |
| 1979-80 | 2nd oil shock | 18.2 % |
| 1990-91 | Gulf war | 13.6 % |
| 2008 | Global commodity spike | 12.9 % WPI |
| 2010 | Food crisis | 10.9 % CPI-IW |
| 2022 | Russia-Ukraine war | 7.8 % CPI (Apr) |
| 2023 | Post-cool-off | 4.25 % CPI (Dec) |
6. Measurement Agencies & Frequency
| Agency | Index | Release Day |
|---|---|---|
| NSO (CSO) | CPI | 12th of month |
| DPIIT (OEA) | WPI | 14th of month |
| RBI | CPI, WPI, GDP-Deflator | Monthly Bulletin |
7. Inflation Control Tools
| Monetary (RBI) | Fiscal (GoI) | Supply-side |
|---|---|---|
| Repo rate, CRR, SLR | Cut excise/customs duty | Buffer stock release |
| Open-Market Operations | Rationalise subsidies | Import liberalisation |
| Cash Management Bill | Higher MSP cap | Cold-chain infra |
8. Important Committees
| Committee | Chairman | Year | Outcome |
|---|---|---|---|
| Chakravarty | Prof Sukhamoy | 1985 | First to suggest 4 % target |
| Rangarajan | C Rangarajan | 2008 | FIT road-map |
| Urjit Patel | Deputy Governor RBI | 2014 | CPI-based target formalised |
| Shaktikanta Das | RBI Governor | 2021 | 5-year FIT extension |
9. One-Liner Revision Facts
- India abandoned WPI-targeting in 2014.
- CPI base year 2012 replaced 2010; WPI base 2011-12 replaced 2004-05.
- Highest weight in CPI: Food & Beverages (45.86 %).
- Highest weight in WPI: Manufactured products (64.23 %).
- RBI prints “Inflation Expectations Survey” quarterly.
- Core inflation = CPI minus food & fuel.
- Deflation is negative inflation; disinflation is falling inflation.
- Stagflation = high inflation + high unemployment + low growth.
- Phillips Curve shows inverse relation between inflation & unemployment.
- Monetary Policy Framework Agreement is reviewed every 5 years.
10. Quick-Reference Table: CPI vs WPI
| Feature | CPI | WPI |
|---|---|---|
| Level | Retail | Wholesale |
| Base | 2012 | 2011-12 |
| Items | 448 | 697 |
| Fuel weight | 6.84 % | 15.96 % |
| Services | Included | Excluded |
| Target variable | YES (RBI) | No |
Practice MCQs (Railway Exam Level)
Which index is used by RBI for inflation targeting in India?
A. WPI B. CPI-Combined C. GDP deflator D. CPI-IWAnswer
BThe current inflation target band in India is:
A. 2–4 % B. 2–6 % C. 4–6 % D. 3–5 %Answer
BThe base year of CPI-Combined is:
A. 2004-05 B. 2010 C. 2012 D. 2011-12Answer
CWho heads the Monetary Policy Committee?
A. FM B. RBI Governor C. CEA D. PMAnswer
BInflation targeting became legally binding for RBI in:
A. 2014 B. 2015 C. 2016 D. 2018Answer
CHighest weight in WPI belongs to:
A. Primary articles B. Fuel C. Manufactured products D. ServicesAnswer
CThe agency that releases WPI is:
A. CSO B. NSSO C. OEA (DPIIT) D. NITI AayogAnswer
CWhich of the following is NOT a monetary tool to curb inflation?
A. Repo hike B. CRR hike C. OMO sale D. Raising MSPAnswer
DThe Urjit Patel Committee recommended targeting:
A. WPI B. GDP deflator C. CPI D. Core WPIAnswer
CIndia faced hyper-inflation (>20 %) in which year?
A. 1967 B. 1974-75 C. 1991 D. 2008Answer
BCore inflation excludes:
A. Food & fuel B. Clothing C. Housing D. ServicesAnswer
AThe current five-year FIT period ends in:
A. 2025 B. 2026 C. 2027 D. 2030Answer
BWhich statement is correct?
A. WPI includes services B. CPI is released monthly by DPIIT
C. RBI uses CPI for target D. Base year of WPI is 2012Answer
CStagflation is characterised by:
A. High growth, low inflation B. High inflation, high unemployment
C. Low inflation, low growth D. Negative inflationAnswer
BThe weight of food in CPI-Combined is approximately:
A. 35 % B. 40 % C. 46 % D. 55 %Answer
CThe first official committee to suggest 4 % inflation target was:
A. Rangarajan B. Chakravarty C. Narasimham D. PatelAnswer
BWhen inflation is negative it is called:
A. Disinflation B. Deflation C. Stagflation D. HyperinflationAnswer
BWhich of the following is a fiscal measure to reduce inflation?
A. Cut in excise duty B. Repo rate cut C. OMO purchase D. SLR cutAnswer
AThe Monetary Policy Committee meets at least:
A. 2 times B. 4 times C. 6 times D. 12 timesAnswer
BThe latest released CPI (Dec 2023) was approximately:
A. 3.2 % B. 4.25 % C. 5.5 % D. 7.1 %Answer
B
Revise → Recall → Reattempt. All the best for your Railway Exam!
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