4. WHAT IS INFLATION?
In economics, inflation is a rise in the general level of prices of
goods and services in an economy over a period of time. When
the general price level rises, each unit of currency buys fewer
goods and services. Consequently, inflation reflects a reduction in
the purchasing power per unit of money – a loss of real value in
the medium of exchange and unit of account within the economy.
A chief measure of price inflation is the inflation rate, the
annualized percentage change in a general price index(normally
the consumer price index) over time.
5. IN INDIA
In India the rate of inflation measured by the Wholesale Price Index(WPI).
The purpose of the WPI is to monitor price movements that reflect supply and demand in
industry, manufacturing and construction. This helps in analyzing both macroeconomic and
microeconomic conditions. Inflation is based on Wholesale Price Index.
WPI tracks changes in average price of goods traded in wholesale market. This is the most
common measure of inflation and is extensively used for policy purposes. It considers three
main product groups - primary articles, fuel and power and manufactured goods. Within
each group there are subgroups and within the subgroup, smaller groups and specific items.
This index, however, does not cover non-commodity producing sectors, e.g. services and
non-tradable commodities. WPI is computed on all-India basis.
For example in India about 435 items were used for calculating the WPI in base year 1993-
94 while the advanced base year 2004-05 and which has now been changed to 2010-2011;
uses 676 items. The indicator tracks the price movement of each commodity individually.
Based on this individual movement, the WPI is determined through the averaging
principle.
6.
7. The S&P BSE SENSEX (S&P Bombay Stock Exchange
Sensitive Index), also-called the BSE 30 or simply the
SENSEX, is a free-float market capitalization-weighted
stock market index of 30 well-established and financially
sound companies listed on BSE Ltd. The 30 component
companies which are some of the largest and most
actively traded stocks, are representative of various
industrial sectors of the Indian economy. Published since
1 January 1986, the S&P BSE SENSEX is regarded as the
pulse of the domestic stock markets in India. The base
value of the S&P BSE SENSEX is taken as 100 on 1 April
1979, and its base year as 1978–79.
