A short presentation on Inflation metrics and terms CPI, WPI, GDP Deflator part of 2IIM's CAT Interview Preparation series

1. De-jargonising Economics

2. Inflation
What are we going to learn?
 Inflation - Definition
 CPI vs. WPI. GDP Deflator.
 Have a sense of what this term implies, do not get carried away
by the technical terms.

3. Inflation - CPI and WPI
 Inflation - Rate at which the general level of prices for goods and services is rising
 CPI: Consumer Price Inflation. Inflation at retail levels. Includes services. Different
sub-components are there for CPI.
 WPI: Whole-sale Price Inflation. Does not include services. The weightages to
different categories are different between CPI and WPI.
 CPI probably most relevant, WPI leads CPI so is probably a good indicator for
policy decisions
Related Links: http://www.miraeassetmf.co.in/mailers/mar13/wpivscpi.html
http://www.quora.com/Why-does-India-use-WPI-instead-of-CPI-to-calculate-inflation

4. Inflation - GDP Deflator, Core inflation
 GDP Deflator - is a comprehensive measure of inflation, implicitly derived from
national accounts data as a ratio of GDP at current prices to constant prices.
 Core inflation: is generally a chosen measure of inflation that excludes the more
volatile categories like food and energy prices. Not that representative for seeing
what consumers face; but likely another input for policy-making.
 Central banks have a mandate to manage inflation by modifying interest rates.
Relevant reading: http://www.rbi.org.in/scripts/BS_SpeechesView.aspx?Id=457 - Fabulous
article.