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How Is Inflation Calculated?

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Let us take note of the Consumer Price Index which is 9.87% for the month of June 2013.This is a measure updated every month. The components include Food, Clothing, Fuel, Housing, Education, Medical, Recreation, Transport, Personal Care, Household Items among others. If one has a look at these components one can easily conclude that these are the items one uses or depends upon in his day to day life. If one looks at this index and compares this to real life situations what do you notice? As affluence increases in society people shift their eating patterns from cereals to protein rich foods. There is a general shift mainly noticed in the Southern Regions of India where people shift from eating plain rice to allocating a greater share to pulses such as Soybean, lentils, beans, fish, eggs and meat in their diet which are rich in proteins .Protein rich foods are also heavily consumed in the Northern parts of India. This has led to the doubling in prices of Onions in June this year as compared to the previous year. Prices of Wheat and Rice have increased at the rate of 19% and 13% from the previous months. The protein rich foods are soaring with the prices of chicken and fish hitting ridiculously high levels. Let us take another major component of the CPI which is fuel. The prices of Petrol, Diesel and LPG are rising at a phenomenally high level. Petrol prices rose by INR 1.55 per Litre on July 17th 2013 following a series of price rises to INR 70.44.There has also been a steady rise in the prices of Diesel in the past few years. The prices of subsidised cylinders in New Delhi were INR 410.50 per cylinder in the month of April where one can avail a maximum of nine subsidised cylinders. The market rates of unsubsidised LPG cylinders in New Delhi are INR 901.50 in the month of April 2013.This has led to a huge rise in the CPI supported by a rise in food and fuel prices. Another factor one needs to concentrate on is the housing sector. Prices in Chennai mainly in the housing sector have gone up around 25%.In Mumbai they have gone up by around 30%.Prices in Delhi have increased around 40%.This has contributed to a rise in the value of the Consumer Price Index. The rise in fuel, food and housing has resulted in a general price rise in transport, recreation, education and so on which contributes to the rise in the CPI .The post office workers are sent to collect the primary data mainly in the rural areas. They collect data by using questionnaires from a test sample. They then use Statistical techniques such as simple random sampling, cluster sampling, systematic sampling and homogenous sampling to arrive at the requisite result. Similarly National Sample Survey Organisation collects data from the urban areas. The old CPI had a base year of 1984-1985 for Urban Non Manual Employees and 1986-1987 for agricultural labourer's .The new CPI has a base year of 2010-2011 which will soon be shifted to 2011-2012.

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