Inflation Calculator - Calculate Inflation in India

What is inflation?

Inflation indicates the rise in price levels of all types of goods and services required for day-to-day use. It signifies the increase in the prices of goods and services that denotes a fall in the purchasing capacity. People can understand the term in the context of the value of the country’s currency, like the Indian rupee. As prices of goods and services rise, each rupee the citizen holds buys less of it. At the same time, when the purchasing power of each rupee declines, the general cost of living ultimately goes up. This happens because now people are spending the same amount of money, but now they get fewer things in return. High inflation can hamstring the country's economy by depressing the purchasing power. On the other hand, if there is too-less inflation, then it has a negative influence on growth by keeping too much money out of the economy in the savings accounts. This happens because people often stop spending too much money and wait for its value to increase over a period of time. As a result, the optimal inflation level encourages spending in today's times instead of saving.

Inflation measures in India

In India, the two indices used to measure inflation are the Wholesale Price Index (WPI) and Consumer Price Index (CPI). The two of them measure inflation on a monthly basis, considering different approaches to calculate the change in prices of goods and services in the country. This study goes on to help the Reserve Bank of India to understand the market’s price change, thereby keeping a tab on inflation.

Consumer Price Index

Consumer Price Index (CPI) reflects the major changes in the retail prices of select goods and services in India on which a homogeneous group of consumers spend a major part of their salary. Majorly, there are three distinct series of CPI, including for industrial workers (IW), agricultural labourers (AL) and for urban non-manual employees (UNME). This analyses the retail inflation of goods and services in the Indian economy across 260 commodities, while the base year for CPI (IW) is 1982. Data for the same is collected separately by the Ministry of Statistics and Program Implementation as well as the Ministry of Labour.

As per the official data shared on July 12, the year-on-year inflation rate based on all India CPI number stood at 5.08% (provisional) for June 2024, while the corresponding inflation rate for rural and urban was 5.66% and 4.39%, respectively.

Wholesale Price Index

Wholesale Price Index (WPI) depicts the price of goods at a wholesale stage. These are goods sold in bulk and traded between organisations and not the consumers. This measure is used in some economies around the world.

The fiscal and monetary policy of the country is majorly impacted by changes in WPI, which is an easy and convenient method to calculate inflation.

As per the official data, the annual rate of inflation based on all India Wholesale Price Index numbers stood at 3.36% (provisional) for June 2024 (over June 2023).

The positive rate of inflation in June this year is primarily due to increase in prices of food articles, manufacture of food products, crude petroleum and natural gas, mineral oils, other manufacturing etc, the government stated.

How is Inflation calculated?

In India, the CPI is used as the measure of inflation, it measures the change in the price of goods and services through a weighted average value of each. The formula used for inflation rate is: Inflation = ((CPI x+1 – CPIx)/ CPIx)) x100

What is an Inflation calculator?

This helps calculate the effect of inflation on the purchasing power and capacity of every individual. Primarily, this is used to indicate the value or worth of money after a certain period. Further, it helps in estimating the worth of the same amount of money if a person uses it for investment purposes.