To measure inflation measures

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.

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