# The Level of Prices Is Increasing

## The Level of Prices Is Increasing

• Submitted By: relton
• Date Submitted: 11/12/2008 11:17 PM
• Category: Social Issues
• Words: 1189
• Page: 5
• Views: 1

Inflation simply means that the level of prices is increasing. A packet of milk will cost more than it was before. So in other words it means that more money will be needed to pay for the goods and services that we buy.

Inflation is very regularly measured and it gives the rate that determines and indicates where the state or country’s economy is in. Measuring inflation is the most difficult task for the government statisticians because all the goods that represent the economy are combined into a pool called as market basket. The cost of the market basket is then compared over time. The result of such comparison gives the price index, which is the cost of the market basket represented as a percentage. The Wholesale Price Index(WPI), the Consumer Price Index(CPI) and the GDP deflator series are the ones that are used by the economists, for measuring the price rise. In India the economists use WPI for computing the price index that captures the price of goods at wholesale level and even the price at which the shop keepers procures goods is noted down. This is the quoted measure of price hikes or inflation in India because it is available every week and also the Retail Price Index is absent at such high frequencies. While India relies on WPI for measuring the inflation, U.S relies on CPI that captures the price of goods and services at consumer level. CPI includes the price at which consumers are able to purchase goods or services. For computing WPI, a base year is selected from where the calculations are made and then the basket of goods are selected that needs to be considered in the computation. Indian WPI uses 1993-94 as the base year and it includes 435 goods. The changing year and goods reflects the change in consumption. The entire WPI basket is divided into three groups with different weights: manufactured goods (63.75%) - comprises of machinery tools, food, clothing, etc., main produces (22%) – comprises of livestock, unprocessed crops, fibers, etc and...