Indian Economy Quiz: Inflation and Price Indices

When the flexible inflation targeting framework was adopted after the amendment of the Reserve Bank of India Act in 2016, the combined rural and urban consumer price index released by the National Statistical Office was made the nominal anchor, as the Urjit Patel Committee had recommended.

The wholesale price index is compiled and released every month by the Office of the Economic Adviser in the Department for Promotion of Industry and Internal Trade, under the Ministry of Commerce and Industry.

It is described in the classic phrase as too much money chasing too few goods.

The word joins stagnation and inflation, and it describes the awkward situation in which prices are rising fast while output is flat and unemployment is high.

A loan is repaid in a fixed number of rupees, and inflation reduces what those rupees can buy. The borrower therefore returns money of smaller real value than the money received, so the real burden of the debt falls.

If the inflation rate falls from seven per cent to five per cent, prices are still higher than last year but they are rising more slowly.

The Monetary Policy Committee set up under the amended Reserve Bank of India Act has six members.

The wholesale price index is built entirely from the prices of goods traded in bulk, and it has exactly three major groups: primary articles, fuel and power, and manufactured products, of which manufactured products carry the largest weight.

The real rate of interest is the nominal rate less the rate of inflation, an approximation known as the Fisher equation.

Nominal GDP is measured at current prices and real GDP at the prices of a base year, so the ratio between them isolates the effect of the change in prices.