How is Inflation Measured?
Inflation can be easily calculated with the help of the simple mathematical formula mentioned below.
Inflation rate (%) =(Final CPI Index Value/Initial CPI Value)*100
You need to know the CPI to calculate the inflation rate from the above formula. So, every household needs certain goods and services for their daily life and they have a certain budget for it according to their income. So, the government conducts the survey and measures the purchasing capacity of random households based on certain essential goods and compares the purchasing capacity of households in the present year with the last year. And this average is known as the Consumer Price Index (CPI). These goods and services mainly include food, transportation, and medical care.
Types of Inflation
Inflation can be simply defined as a decline in the value of a currency. Inflation directly affects the prices of essential goods and services. Also, it helps in calculating the increase in the price of certain goods and services in the past years. Inflation can be experienced when it requires more money to buy the same amount of goods. For example, if a pack of biscuits weighing 50 grams costs Rs. 5/Nos. in the year 2021 and the same pack of biscuits costs Rs. 8 in the year 2022 then it can be said that there is inflation. When a unit of currency can buy less than usual then it can be said that the nation is going through inflation. Inflation is measured in percentages, and the current rate of annual inflation in April of 2022 in India is 7.79%. Deflation is a state in which the prices of goods and services begin to fall with an increase in the value of the currency.
Read, What is Inflation
Table of Content
- Inflation and its Impact
- Types of Inflation
- How is Inflation Measured?
- Advantages and Disadvantages of Inflation
- Steps Adopted by the GOI to Tackle Inflation in India