Inflation is crucial to determine one’s purchasing power. In other words, inflation is a measure that causes the prices of both goods and services to rise over time and buyers will feel the pinch as it affects their personal finance, particularly spending and buying habits.
One way of understanding inflation is, for instance, you bought a list of household essentials last month at an expense of INR 1,000, but this month the price of a certain food item in the same list has risen and that has led to an increase in the cost by let’s say INR 1,100. You may be either forced to remove an item from your cart or buy the product that has the inflated price by paying extra which may affect your monthly-set budget.
Therefore, any factor that causes prices of goods and services to rise in the market and create instability in consumption leads to inflation. Economists suggest that achieving inflation that’s moderate enough to drive consumption will create a baseline of growth in the economy. However, high inflation indicates that an economy is facing serious troubles; whereas, low inflation, a.k.a. deflation is equally worrisome.
How to Calculate Inflation Rate In India?
There are two indices that are used to measure inflation in India — the consumer price index (CPI) and the wholesale price index (WPI). These two measure inflation on a monthly basis taking into account different approaches to calculate the change in prices of goods and services. The study helps the government and the Reserve Bank of India (RBI) to understand the price change in the market and thus keep a tab on inflation.
The CPI, which refers to the Consumer Price Index, analyzes the retail inflation of goods and services in the economy across 260 commodities. The CPI-based retail inflation considers the change in prices at which the consumers buy goods. The data is collected separately by the Ministry of Statistics and Program Implementation and the Ministry of Labour.
The WPI, which refers to the Wholesale Price Index, analyzes the inflation of only goods across 697 commodities. The WPI-based wholesale inflation considers the change in prices at which consumers buy goods at a wholesale price or in bulk from factory, mandis, etc.
Average Inflation Rate in India (Last Year)
India’s retail inflation, which is measured by the consumer price index (CPI), eased to a four-month low of 4.87% in Oct. 2023, from 5.02% in Sep. this year, according to the latest data from the Ministry Of Statistics and Programme Implementation. The lowest CPI this year was recorded in May at 4.25%. In the last two years, CPI hit the highest of 7.79% in April 2022, and the lowest of 4.06% in Jan. 2021.
The wholesale Price Index (WPI), which calculates the overall prices of goods before selling at retail prices, is at (-)0.52% in Oct., (-)0.26% in Sep., and (-)0.52% in Aug., this year.
Average Inflation Rate in India (Last 10 Years)
Here’s a list of the country’s inflation as measured in both CPI and WPI indices to help you understand the change in price over time.
Latest Inflation News in India (Updated Nov. 15, 2023)
Nov. 15, 2023: Retail Inflation eases to 4-month low of 4.87% in Oct. 2023
India’s retail inflation eased to a four-month low of 4.87% in Oct. 2023. The CPI reading continues to cross the Reserve Bank of India’s upper tolerance medium-term target of 4% within a band of 4+/- 2%.
Amid the rising prices, especially across food prices and vegetables like onions, due to the essentially weak kharif harvest, the Reserve Bank of India (RBI) decided to continue to pause rate hikes and keep the benchmark repo rate unchanged at 6.50%.
RBI governor Shanktikanta Das maintains that the monetary policy committee will remain focused on withdrawal of accommodation as merited to ensure inflation does not obstruct growth prospects, and take actions promptly and appropriately as required to keep inflation expectations firmly anchored to bring down inflation to the target.
The RBI projects the headline inflation or the CPI for 2023-24 at 5.4%, from 5.1% earlier. The real GDP growth is projected at 6.5% with Q1 at 8.0% during the period.
Madhavi Arora, lead economist at Emkay Global Financial Services, said the November inflation is expected to rise at 5.2% to 5.3% due to higher food prices due to erratic monsoon and weak sowing which may lead to decline in harvests.
Many participants believe the RBI is on track to balance the country’s growth and inflation, but if upward pressure on prices persists the stock market is likely to face its impact in the near-to-mid term.
Meanwhile, the Oct. 2023 inflation in the U.S. suggests that the consumer price index increased 3.2% year-over-year, from 3.7% in Sep., this year. The nation’s GDP accelerated to 4.9% in the third quarter, from 2.1% in the second quarter.
How To Beat Inflation In 2023?
The government, in the past, has announced a series of measures to ease inflation — cut the excise duty on petrol and diesel, reduce import duty on key raw materials and crude edible oils, to name a few. On the other hand, one way the RBI tries to control inflation is by increasing the repo rate (the rate of interest or cost levied upon public and private banks for borrowing money from the apex bank), in order to control and supply and demand of goods and services. Simultaneously, the increase in repo rates compels banks to increase interest rates on loans and deposit rates.
Hence, it is important to ensure that you’re financially disciplined, not just about your spending and buying habits but about your savings and investments too. Choosing the right investment instrument is the one way to remain financially safe, which not only suits your personal finance needs given the risk you are willing to take, but also allows your savings to grow enough to beat inflation.
Related: Are We In A Recession Yet?
Bottom Line
Managing your personal finances is one of the ways to beat inflation.
- Categorize your finances to meet long-term, mid-term, and short-term goals.
- Plan your savings and choice of investment instruments.
- Increase savings + investment amount as per the growth in your income.
Following the suit consistently will help you achieve your financial goals with an optional extra wealth accumulated over time, and also combat inflation as well as meet the depreciating value of the Indian currency against the U.S. dollar.
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