Inflation is crucial to determining purchasing power. In other words, inflation is a measure that causes the prices of goods and services to rise over time, and buyers will feel the pinch as it affects their personal finances, particularly spending and buying habits.
One way of understanding inflation is, for instance, you bought a list of household essentials last month at the expense of INR 1,000, but this month, the price of a specific food item in the same list has risen, leading to an increase in the cost by, let’s say INR 1,100. You may be forced to remove an item from your cart or buy the product at an inflated price by paying extra, which may affect your monthly budget. Vinyl Plotter Vinyl Cutters
Therefore, any factor that causes prices of goods and services to rise in the market and creates instability in consumption leads to inflation. Economists suggest that achieving moderate inflation enough to drive consumption will develop a baseline of economic growth. However, high inflation indicates that an economy is facing severe troubles, whereas low inflation, a.k.a. deflation, is equally problematic.
Two indices measure inflation in India: the consumer price index (CPI) and the wholesale price index (WPI). These two measure inflation monthly, considering different approaches to calculating the change in prices of goods and services. The study helps the government and the RBI understand the market’s price change and thus keep a tab on inflation.
The CPI, the Consumer Price Index, analyzes the retail inflation of goods and services in the economy across 260 commodities. The CPI-based retail inflation considers the price changes at which the consumers buy goods. The data is collected separately by the Ministry of Statistics and Program Implementation and the Ministry of Labour.
The WPI, which stands for the Wholesale Price Index, analyzes the inflation of only goods across 697 commodities. WPI-based wholesale inflation considers the price change at which consumers buy goods at a wholesale price or in bulk from factories, mantis, etc.
India’s retail inflation, measured by the Consumer Price Index (CPI), eased to 4.75% in May from 4.83% in April 2024, according to the latest Ministry of Statistics and Programme Implementation data. The CPI last hit the lowest at 4.25% in May 2023.
The wholesale Price Index (WPI), which calculates the overall prices of goods before selling them at retail prices, rose to 1.26% in April from 0.53% in March this year.
Here’s a list of the country’s inflation as measured in both CPI and WPI indices to help you understand the change in price over time.
(* The Government of India did not release the CPI inflation rate for April and May 2020 due to the nationwide lockdown induced by the Covid-19 pandemic.)
June 12, 2024: India’s retail prices in May eased to 12-month low at 4.75%
India’s retail inflation eased to 4.75% in May 2024, the 12-month low since May 2023. The core inflation decreased to 3.1% in May from 3.2% in April 2024. However, food inflation remains sticky at 8.69%.
“These figures are likely to reassure the Reserve Bank of India (RBI) regarding the downward trend in inflation, echoing recent discussions at the MPC meeting,” said Raghvendra Nath, Managing Director of Ladderup Wealth Management.
Nath explained that bond markets are expected to respond positively to this update unless the anticipated US CPI release and FOMC statement signal a surprising hawkish shift.
The Reserve Bank of India (RBI) has paused rate hikes and kept the benchmark repo rate unchanged at 6.50%. RBI governor Shanktikanta Das has maintained that the monetary policy committee will remain focused on withdrawing accommodation as merited to ensure inflation does not obstruct growth prospects and will take actions promptly and appropriately as required to keep inflation expectations firmly anchored and bring inflation down to the target.
The RBI projects headline inflation or the CPI for Q1FY25, Q2FY25, Q3FY25, and Q4FY2 at 5%, 4%, 4.6%, and 4.7%, respectively. Real GDP growth is projected at 6.5%, with Q1 at 8.0%. The central bank projects real GDP growth at 7% for the financial year 2024–25.
Many participants believe the RBI is on track to balance the country’s growth and inflation, but if upward pressure on prices persists, the stock market will likely face its impact in the near-to-mid term.
Meanwhile, April 2024 inflation in the U.S. suggests that the consumer price index decreased to 3.4% year over year from 3.5% in March.
In the past, the government has announced a series of measures to ease inflation — cut the excise duty on petrol and diesel and reduce import duty on critical raw materials and crude edible oils, to name a few. On the other hand, the RBI tries to control inflation by increasing the repo rate (the rate of interest or cost levied upon public and private banks for borrowing money from the apex bank, to maintain the supply and demand of goods and services. Simultaneously, the increase in repo rates compels banks to increase interest rates on loans and deposit rates.
Hence, it’s essential to be financially disciplined, not just regarding your spending and buying habits but also your savings and investments. Choosing the right investment instrument is the one way to remain economically safe, which not only suits your personal finance needs to give you the risk you are willing to take but also allows your savings to grow enough to beat inflation.
Related: Are We In A Recession Yet?
Managing your personal finances is one of the ways to beat inflation.
Following suit consistently will help you achieve your financial goals with an optional extra wealth accumulated over time. It will also combat inflation and meet the depreciating value of the Indian currency against the U.S. dollar.
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Dipen Pradhan is a Staff Reporter for Forbes Advisor India. He has more than 10 years of experience in journalism. He covers the personal finance beat. When he is not writing, he enjoys documenting the community's ethnic knowledge, and travels to explore rural hotspots.
Film Cut Software Aashika is the India Editor for Forbes Advisor. Her 15-year business and finance journalism stint has led her to report, write, edit and lead teams covering public investing, private investing and personal investing both in India and overseas. She has previously worked at CNBC-TV18, Thomson Reuters, The Economic Times and Entrepreneur.