Measures of inflation
Inflation is an important economic indicator used to measure the rising prices of goods and services. Simply put, it means that you can buy less today with the same amount of money as yesterday. That leads to a reduction of currency value over time. In India, the rate of inflation is determined mainly by the consumer price index (CPI) and wholesale price index (WPI).CPI measures the retail inflation of goods and services across 260 commodities and CPI-based inflation considers the change in prices at which consumers buy goods. WPI on the other hand reflects changes in the average prices of goods at the wholesale level. It is used in measuring the macroeconomic and microeconomic condition of an economy, however, its role in measuring inflation is limited because it does not consider the price of services and consumer prices. Hence, the RBI changed from using WPI as the main measure to monitor inflation to CPI.