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Current Affairs

Wholesale and retail inflation

Date: 16 November 2019 Tags: Basics of Economics

Issue

The official data showed that the wholesale inflation in the country for October grew by just 0.16 per cent. In October last year, it grew by 5.5 per cent. The rate of wholesale inflation has been falling steadily.

 

Details

  • This deceleration in wholesale prices has happened despite a significant jump in wholesale food prices.

  • WPI food inflation rose to 7.6 per cent. The spike was essentially led by an almost 40 per cent surge in vegetable prices and a 17 per cent surge in the price of pulses. Increases in prices of spices and cereals, too, contributed to increasing wholesale food inflation

  • The WPI inflation for October has touched a 40-month low. But retail inflation in the country for the same month has touched a 16-month high.

  • Food articles have a much higher weight ,over 45 per cent in CPI or retail inflation index.

  • In WPI, their weight is less than 30 per cent. So even a similar spike in prices will show up a much higher impact in the retail inflation index than the wholesale inflation index.

  • Similarly, fuel and energy have a much higher weight in WPI inflation. A spike in these prices obviously bumps up only the retail inflation while leaving the wholesale inflation unaffected.

  • Inflation

Inflation is the increase in the prices of goods and services over time.

Inflation increases your cost of living. Inflation reduces the purchasing power of each unit of currency.

  • Deflation

Deflation is a decrease in the general price level of goods and services. Deflation occurs when the inflation rate falls below 0%.

  • Disinflation

Disinflation is a decrease in the rate of inflation , a slowdown in the rate of increase of the general price level of goods and services in a nation's gross domestic product over time. It is the opposite of reflation. 

  • Recession

Recession is a slowdown or a massive contraction in economic activities. A significant fall in spending generally leads to a recession. Such a slowdown in economic activities may last for some quarters thereby completely hampering the growth of an economy.

  • Reflation

Reflation is the act of stimulating the economy by increasing the money supply or by reducing taxes, seeking to bring the economy (specifically price level) back up to the long-term trend, following a dip in the business cycle.