Is this a new definition of inflation
Imagine the movement of goods, and the basic items needed for an average household. Let us assume that the bench mark of household cost affecting commodity price rise is within a range. For example, let us mark a group of the household expenses as 3,000 INR to 5,000 INR per week. Then, for that sample of households, we can declare the necessary basic items required for daily activities- cooking oil, gas, vegetables, medicines, household items and so on with a specific weight. The price increase of this household items can be clubbed together to form the consumer price inflation.
| Basic Household Items | Weight | Previous Price Aggregate | Current Price Aggregate |
| Basic Essential Items | |||
| Medicines | 5% | 300 | 350 |
| Cooking Oil | 10% | 100 | 120 |
|
Basic Food Items |
|||
| Vegetables | 20% | 50 | 70 |
| Staple food items | 15% | 100 | 90 |
|
Basic Daily Expense Items |
|||
| Electricity | 5% | 300 | 300 |
Then, the consumer price inflation can be calculated as-
CPI Percentage Increase= 5% of (350-300) + 10% of (120-100) + 20% of (70-50) + 15% of (90-100) + 5% of (300-300)/ (300 + 100 + 50 + 100 + 300),
And, CPI Indexed Inflation = 5% of (350-300)/ 300 + 10% of (120-100/100 + 20% of (70-50)/ 50 + 15% of (90-100)/100 + 5% of (300-300)/ 300
Without weights attached,
CPI Aggregated Increase= (350-300) + (120-100) + (70-50) + (90-100) + (300-300)/ (300+100+50+100+300)
| Basic Household Items | Weight | Wholesale Price Index | Consumer Price Index |
| Basic Essential Items | |||
| Medicines | 5% | 320 | 350 |
| Cooking Oil | 10% | 110 | 120 |
|
Basic Food Items |
|||
| Vegetables | 20% | 90 | 70 |
| Staple food items | 15% | 100 | 110 |
|
Basic Daily Expense Items |
|||
| Electricity | 5% | 290 | 300 |
Again, to calculate WPI, we get-
Wholesale Price Inflation = 5% of (350-320) + 10% of (120-110) + 20% of (70-90) + 15% of (110-100) + 5% of (300-290)/ (320 + 110 + 70 + 110 + 300).
There can be retail inflation index- retail price inflation.
Retail price inflation is based on the movement of goods and items from manufacturing to wholesale, wholesale to retail, retail to consumer.
