# Consumer Price Index (CPI) - Indian Economy Notes

The Consumer Price Index or CPI or market basket is an index used to calculate the retail inflation in the country. It is one of the important tools to evaluate inflation and deflation. The topic, ‘Consumer Price Index’ is important from the IAS Exam perspective (Prelims and Mains GS-IIIÂ  Indian Economy.) This article will provide you with relevant facts about CPI which will be helpful for UPSC Prelims and also Mains General Studies 3 papers.

 To cover the important topics mentioned in theÂ UPSC Syllabus, you can check the following links:

## What is CPI?

Consumer Price Index or CPI is the measure of changes in the price level of a basket of consumer goods and services bought by households. CPI is a numerical estimation calculated using the rates of a sample of representative objects the prices of which are gathered periodically.

• The CPI captures changes in price level at the consumer level.
• Changes in prices at the producer level are tracked by the Wholesale Price Index (WPI).
• CPI can capture the change in the prices of services which the WPI cannot.

Candidates should know that CPI is different than WPI. Candidates can read about Wholesale Price Index (WPI) in the linked article.

### How is CPI calculated?

The Consumer Price Index or CPI assesses the changes in the price of a common basket of goods and services by comparing with the prices that are prevalent during the same period in a previous year.

The formula for calculating CPI is:

CPI = (Cost of market basket in a given year / Cost of market basket in base year) x 100

### Types of CPI

 CPI for Industrial Workers (CPI-IW) It tries to measure the alterations over a time period on the prices of a fixed basket of goods and services utilised by Industrial Workers. The target group would be an average working-class family from any of these seven sectors of the economy ranging from factories, mines, plantation, motor transport, port, railways to electricity generation and distribution. Compiled by the Labour Bureau. CPI for Agricultural Labourers (CPI-AL) The Labour Bureau compiles this data to revise minimum wages for agricultural labour in different States. CPI for Rural Labourer (CPI-RL) Also compiled by the Labour Bureau. CPI ( Urban Non-Manual Employees) (CPI-UNME) The Central Statistics Office (CSO) which is now the National Statistical Office (NSO) compiles this dataÂ  CSO is under the Ministry of Statistics and Program Implementation

Note: CPI for Agricultural and Rural labourers on base 1986-87=100 is a weighted average of 20 constituent state indices and it measures the extent of change in the retail prices of goods and services consumed by the agricultural and rural labourers as compared with the base period viz â€˜86-87. This index is released on the 20th of the succeeding month.

### What is the Need for CPI?

The Consumer Price Index is an economic indicator which is mainly used to measure inflation. It givesÂ the government, businesses, and citizens an idea about the change in prices in an economy.

CPIÂ can be used to index the real value of wages, salaries, and pensions; to regulate prices, and to deflate monetary magnitudes to show changes in real values.

To read in detail about The Bubble of â€˜Benignâ€™ Inflation, check June 2nd Week 2019 EPW.

Consumer Price Index (CPI):-

Q1

### What is the Consumer Price Index?

The Consumer Price Index or CPI is responsible for tracking the shift in retail prices of essential and daily goods and services consumed by households across the country.
Q2

### What is the CPI in India?

Consumer Price Index or CPI is the measure of changes in the price level of a basket of consumer goods and services bought by households.
Considering the WPI and CPI, the RBI will calculate the inflation in the country.