Suppose
you want to track the price of wheat for 7 years. Let’s assume that the price
of wheat in 2012 was 15 rs a kilo. In 2013, it became 18 rs, and so on. In
2019, it became 43 rs a kilo. You tell your friend very proudly that wheat is
now 43 rs a kilo, while it was 15 rs a kilo just 7 years ago.
The
friend asks, “Whoa! What percent increase is that?”
You now
have to do a second calculation to get the percentage.
The
government has to do that for over 100 items. As a citizen, imagine calculating
the percentage increase for hundreds of items!
So, the
folks who know economics (the science of money) came up with an idea. Suppose
we say that the current price of wheat is 100. Then next year, if it becomes
18, we calculate that on the base of 100 and declare the new number. So, when
we tell you that the Price Index for wheat is 138, you can tell that there is a
38% increase over 7 years.
This is
called indexing – when we fit the “base” price of all items to 100 and
calculate all future prices on that basis.
The
Consumer Price Index tells us this: If something used to cost 100 rs in 2012,
how much will it cost today? The Consumer Food Price Index is only for food
items.
What is inflation?
When we talk about price rise, one of the things we are likely to ask is – how much
did it cost last year? How much has it risen in a year? Obviously, bread has
not gone from 15 rs to 100 rs. And eggs HAVE gone from 1.5 rs to 5 rs per egg.
Everything rises at a different rate.
Suppose bread cost 10 rs. in Jan 2019, and 12 rs. in
Jan 2020. The price rise is 2 rs., or 20%. This 20% is the INFLATION of the
product.
What is the difference between the
Consumer Food Price Index and the Consumer Price Index?
Think about it. Do we only spend on food
at home? No, right? We spend on other things – like electricity, transport and
travel, education, medicines, etc.
The Consumer Price Index is the index
(comparison) of how much prices have risen for ALL these things that a person
needs.
The Consumer Food Price Index is ONLY
for food items.
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| Consumer Food Price Index - Jan 2020 |
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