Consumer Price Index (CPI)

It is an index which measures the weighted average of prices of a basket of consumer goods and services such as transportation, food and medical care.
It is calculated by measuring price changes for each item in the predetermined basket of goods and services and averaging them.
It is released by the National Statistical Office (NSO) under the Ministry of Statistics and Programme Implementation.
The base year used to calculate CPI in India is 2011-2012.

While the Wholesale Price Index keeps track of the wholesale price of goods, the CPI measures the average price that households pay for a basket of different goods and services.
The CPI basket consists of services like housing, education, medical care, recreation etc. which are not part of WPI basket. A significant proportion of WPI item basket represents manufacturing inputs and intermediate goods like minerals, basic metals, machinery etc. whose prices are influenced by global factors but these are not directly consumed by the households and are not part of the CPI item basket.
Even as the WPI is used as a key measure of inflation in some economies, the RBI no longer uses it for policy purposes. The central bank currently uses the Consumer Price Index as a key measure of inflation to set the monetary and credit policy.
Under the flexible inflation targeting (FIT) framework, RBI aims to contain CPI based inflation within 4 percent with a band of (+/-) 2 percent.

India’s retail inflation based on the Consumer Price Index marginally eased to 5.3% in August, staying within the Reserve Bank of India’s comfort zone.
The CPI was 5.59% in July and 6.69% in August 2020.

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