1) Meaning of inflation
Inflation is a sustained increase in the general price level over time, reducing purchasing power of money.
Inflation rate is typically measured as percentage change in a price index.
2) Measures of inflation in India (high-yield)
2.1 CPI (Consumer Price Index)
Tracks prices of consumer goods and services.
- CPI inflation is key for cost of living and monetary policy focus.
2.2 WPI (Wholesale Price Index)
Tracks prices at wholesale level (goods-heavy).
- Useful for producer-side price movements; historically used widely in India.
Exam tip: Today, inflation targeting in India is based on CPI.
3) Types/causes of inflation
3.1 Demand-pull inflation
Prices rise because aggregate demand increases relative to supply. Drivers: higher income, credit expansion, fiscal stimulus, etc.
3.2 Cost-push inflation
Prices rise due to higher input costs. Drivers: fuel price shock, supply bottlenecks, wage increases, currency depreciation.