I am trying to study Indian Economics these days. I hope I would
go through it. For the starting I will copy paste some of the basic terms for
my use so that I can refer to them anytime I want from here. As I am no
Economist; just an Engineer, so this will be my approach.
My latest obsession is Inflation, so we'll first discuss about that. We will define "Economy" later, and "Indian Economy" will come after all such "small" terms.
My latest obsession is Inflation, so we'll first discuss about that. We will define "Economy" later, and "Indian Economy" will come after all such "small" terms.
So,
what is Inflation?
If you search on Google, the smallest possible definition of
Inflation is a general and progressive increase in prices; "in inflation
everything gets more valuable except money". But, if you want to define
inflation technically it goes like following: It is the Percentage Increase in
WPI with respect to last year.
Here another new term has popped up: WPI.
Here another new term has popped up: WPI.
What
is WPI?
WPI: Wholesale Price Index "It is the average of weighted
average of price of a basket of commodities" or it can also be described
as "the price of a representative basket of wholesale goods". Some
countries use the changes in this index to measure inflation in their
economies, in particular India – The Indian WPI figure is released weekly on
every Thursday and influences stock and fixed price markets. The Wholesale
Price Index focuses on the price of goods traded between corporations, rather
than goods bought by consumers, which is measured by the Consumer Price Index.
The purpose of the WPI is to monitor price movements that reflect supply and demand in industry, manufacturing and construction. This helps in analyzing both macroeconomic and microeconomic conditions.
The purpose of the WPI is to monitor price movements that reflect supply and demand in industry, manufacturing and construction. This helps in analyzing both macroeconomic and microeconomic conditions.
Calculation
of Wholesale Price Index
The wholesale price index consists of over 2,400 commodities.
The indicator tracks the price movement of each commodity individually. Based
on this individual movement, the WPI is determined through the averaging
principle. The following methods are used to compute the WPI:
Laspeyres Formula (relative method): It is the weighted arithmetic
mean based on the fixed value-based weights for the base period.
Ten-Day Price Index: Under this method, "sample
prices" with high intra-month fluctuations are selected and surveyed every
ten days through phone. Utilizing the data retrieved by this procedure and with
the assumption that other non-surveyed "sample prices" remain
unchanged, a "ten-day price index" is compiled and released.
Calculation Method: Monthly price indexes are compiled by
calculating the simple arithmetic mean of three ten-day "sample
prices" in the month.
Now, I hope above mentioned statements make some sense. If they don't, there's nothing to worry about. Since still there is a long way to go. We have discussed Inflation and now we are ready to discuss Inflation rate.
Inflation
rate
The inflation rate is a measure of inflation, the rate of
increase of a price index (WPI in Indian Context).
If P0 is the current average price level and P
− 1 is the price level a year ago, the rate of inflation during the year might be measured as follows:
− 1 is the price level a year ago, the rate of inflation during the year might be measured as follows:
