The inflation rate of an economy can be easily calculated by using the following formula:
[CPI(c)-CPI (p) ÷ CPI (p)]×100
Where;
CPI(c) is the consumer price index of the current year
CPI (p) is the consumer price index of the previous year or initial consumer index
For example, the CPI of the previous year was Rs.100 and the CPI for the current year is Rs.104. Then inflation rate is;
[CPI(c)-CPI (p) ÷ CPI (p)]×100
[(104-100)÷ 100] ×100 = (4/100) ×100= 4%
With another example let us find out the rate of inflation for the current year.
Assume CPI in the previous year is Rs.100000/- and in the current year it is 108000/-, then the inflation rate of the current year is;
[(108000-100000) ÷ 100000] ×100 = (8000/100) ×100= 8%
Consumer Price Index (CPI) is envisioned to measure the changes over time in the level of retail prices of a fixed set of goods and services consumed by an average family of a defined population group in a given area concerning a base year. [Example: The Consumer Price Index numbers for Industrial Workers (CPI-IW) on base year 2001=100]. For this purpose, a detailed family budget
The Consumer Price Index differs from the Wholesale Price Index in the sense that WPI is based on the value of domestic production, imports, and wholesale prices whereas the Consumer Price Index is based on average expenditure reported on the items consumed by a given population and retail prices.
The Government measures to control inflation:
One of the commonly used measures to control inflation is controlling the money supply in the economy. If the Government decreases the supply of money, then the demand will fall, leading to a fall in prices. Therefore, the Government decides to withdraw circulation of a certain amount of currencies available to the public.
Read the following money supply and inflation-related posts.
