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TIN - Understanding Inflation - 2 | WPI & CPI - June 2018 Update | Mains Answer Writing Points
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Aman Sharma is teaching live on Unacademy Plus

Aman Sharma
B.tech (ECE) , M.A(Sociology) STUDY IAS Newspaper Analyst | Motivational Speaker Knowledge, like air, is vital to life.

U
Unacademy user
And one more request is that I have gone through your profile where it is mentioned that you have done Masters in sociology.. so I can assume that u might be having a good command on this subject obviously as u r a scholar in others.. my optional subject is sociology and my coaching teacher is really making it complicated I mean he teaches in a haphazard way which is completely unconnected to us.. Actually all students are facing the same not only me therefore u r the only one I follow besides my coaching so I just want request you to help me with that also please
Aman Sharma
7 months ago
i can't say i am a scholar or not , but will definitely help you at my best ... message me on YouTube , you can find my mail there or you can just message your query in Unacademy's message box ....
Anju singh
7 months ago
I didn't find your email id..?
hey thanks so much this is really.. would be grateful if you consider a request of mine to please organise a session on farmars, MSP, govt. agriculture policies and analysis in the context of current fluctuations n surge in the agricultural sector.. please, though I have gone through news papers and other sources for this but unable to grasp the Crux of the issue and I really get along the way you make things understand.. I hope for your consideration.. thanks Aman
Aman Sharma
7 months ago
next TIN will be on MSP and i will make sure that it will be one of the best explaination.. on that demand ... and thank you for the appreciation .
Anju singh
7 months ago
thanks so much yar...
this is really helpful*..
  1. TOPIC IN NEWS unacademy Understanding inflation AMAN SHARMA


  2. TOPIC IN NEWS Aman Sharma VVERIFIED Follow B.tech (ECE), M.A(Sociology) The STUDY IAS guy. Knowledge, like air, is vital to life. Like air, no one should be denied it. SCIENCE & TECHNOLOGY URRENT AFFAIRS MAY 2018 SCIENCE &TECHNOLDY unacademy By Aman Sharma G (Hindi) May 2018- Science and Technology Current Affairs for... By Aman Sharma Current Affairs Revision for Prelims 2018 By Aman Sharma (Hindi) Crash Course: Science & Technology Current Affairs... AMAN SHARMA


  3. Understanding inflation TOPIC IN NEWS In June, WPI inflation rose to its highest level in 54 months. Does rising WPI inflation really matter? How does WPI inflation differ from CPI inflation? And how does inflation impact a country's economic growth? Inflation AMAN SHARMA


  4. Understanding inflation The impact TOPIC IN NEWS The increase in the WPI headline print might not appear extremely relevant from a policy perspective, given that the RBl now focuses almost entirely on the other inflation metric -the Consumer Price Index or CPl - to decide on changing key policy rates. The rise in WPl inflation, however, highlights the pressure on prices in the economy, and indicates a further rise in retail inflation. There are two key concerns here: one, that there has been a sustained increase in WPI inflation since the start of the current fiscal, and two, that data released by the government last week showed that retail inflation, too, had risen to a five-month high of 5% in June. Given these trends, the sharper-than-expected uptick in the WPI inflation in June 2018 reinforces expectations of analysts that a repo rate hike is likely at the next meeting of the RBl's Monetary Policy Committee in August. The worry for policymakers in the surge in WPI numbers, even after discounting for the base effect (a low reading of 0.90% in June 2017, the base for calculating the year-on-year inflation for June 2018), is the cascading effect that it could have on CPI. AMAN SHARMA


  5. Understanding inflation TOPIC IN NEWS CPI vs WPI While both baskets measure inflationary trends (the movement of price signals) within the broader economy, the two indices differ sharply in the manner in which weightages are assigned to food, fuel and manufactured items, as well as at the broken-down level of these segments. So, wholesale inflation, measured by WPI, tracks year-on-year inflation at the producer or factory gate level, and is a marker for price movements in the purchase of bulk inputs by traders. CPI, on the other hand, captures changes in prices levels at the shop end, and is, thereby, reflective of the inflation experienced at the level of consumers. The weightage of food in CPI is far higher (46%) than in WPI (24%). Also, WPI does not capture changes in the prices of services, which CPI does. AMAN SHARMA


  6. Understanding inflation TOPIC IN NEWS CPI vs WPI As in any imperfect market, changes in prices at the producer level get transmitted to consumers, mostly with a lag and, in some cases, not to the full extent of the impact at the producer level. So, while a higher WPI reading can be an aberration at times, a steady upward surge in WPI reading is most certainly an indicator of inflationary pressure entrenching itself within the broader Differences /CP economy and getting eventually reflected in the CPI numbers. In April 2014, the RBI had adopted the CPI as its key measure of inflation. Prior to this, the central bank had given more weightage to the WPl as the key measure of inflation for all policy purposes. WPl Farm Wholesale Depot WPI & CPI? Retail Shop AMAN SHARMA


  7. Understanding inflation Warning signs TOPIC IN NEWS In its last policy review in June, the RBI had indicated that there could be significant upside inflationary risks, thus leading to an increase in prices of commodities, especially food. The central bank hiked rates unexpectedly in the June review (a hike was expected only in August), and said it wanted to counter rising inflation at an early stage. The worry is that the revised inflation projection of 4.8%-4.9% issued by the RBI in its June review could be breached in the first half of FY'19 due to rising crude oil prices, according to projections by India Ratings and Research (Ind-Ra) earlier this month. 20% 100 80 60 40 20 INFLATION 32% AMAN SHARMA


  8. Understanding inflation Warning signs TOPIC IN NEWS On Monday, the International Monetary Fund (IMF), in an update to its World Economic Outlook, said the Indian economy will grow slower than what it had estimated three months ago, because of higher crude prices and faster interest rate hikes. In the fresh update, the IMF trimmed India's growth projection for 2018-19 by 10 basis points to 7.3%. For 2019-20, IMF cut its projection by a sharper 30 basis points to 7.5%. Reflecting this view, Morgan Stanley, in its latest India Equity Strategy Almanac, noted that the likely rise in crude oil prices that could put pressure on growth, an election cycle that brings its own set of uncertainties, and an upward pressure on inflation from food price hikes that sees the RBI hike rates further, are among the top risks to Indian equities. AMAN SHARMA


  9. Understanding inflation Inflation and growth TOPIC IN NEWS What toll does inflation take on growth? Based on studies of a wide range of countries over the years, economists have broadly concluded that the threshold values of inflation in developing countries are higher than in developed countries. Studies such as those by Khan and Senhadji (2001) and Lopez-Villavicencio and Mignon (2011), pegged the threshold for inflation in developing countries at 7-11 per cent compared to 1-3 per cent in the developed countries. Most of these papers find the inflation-growth relationship as being "significantly negative" if inflation is above the threshold value, and "insignificant or significantly positive" if it is below the threshold value. AMAN SHARMA


  10. Understanding inflation Inflation and growth TOPIC IN NEWS In the Indian context, a significant paper was Inflation Threshold in India: An Empirical Investigation by Deepak Mohanty, A B Chakraborty, Abhiman Das and Joice John (2011), which examined "threshold effects" in the relationship between inflation rate and real GDP growth using a combination of approaches. The empirical analysis, using data for the period Q1:1996-97 to Q3:2010-11, concluded that inflation threshold (in the sense of structural break point) existed for India, and this implied a non-linear relationship between inflation and growth. The empirical results of this study suggested that there exists a "statistically significant structural break" in the relation between output growth and inflation in the 4% to 5.5% inflation range, above which inflation retards growth rate of GDP, and below the threshold level, there is a "statistically significant positive relationship" between inflation rate and growth. The paper concluded that substantial gains can be achieved if inflation is kept below the threshold. AMAN SHARMA