This article throws light on the burning topic in the economy: Inflation. It seems that it will gradually halt the growth of Indian economy if serious steps are not taken to deal with it. The targeted GDP growth rate of 9% clearly unattainable with the impact of rising prices in spite of good business done in India. Though the Reserve Bank of India has taken several steps to contain the menace, the inflation continues unabated and has reached an alarming 12% mark.

Inflation has become a serious problem for India at present. The rising prices of commodities are a threat to the common man's survival. Salaried employees are the most affected and they are finding it difficult to make both ends meet.

A rise in the general level of prices of goods and services over time is referred to as inflation. Sometimes, the term is used to refer to a rise in the prices of a specific set of goods or services. It is also referred to as a decrease in the value of currency or fluctuations in real demand for goods and services or scarcity of them. It is measured as the percentage change of price index (various indices used for measuring inflation are discussed in the later part of this article).

Inflation can be best judged by the prevailing inflation rate in the economy. In India, the rate of inflation is generally determined by Consumer Price Index (CPI) and Producer Price Index (PPI). CPI is the set of indices framed by the purchases made by typical consumers in the economy. In the UK, an alternative index called Retail Price Index (RPI) uses a slightly different market basket. Cost of living indices are also often used to adjust fixed incomes and contractual incomes to maintain the real value of those incomes. However, PPI is the set of indices which are framed by the prices received by the producers in the economy. The earlier version of PPI was known as Wholesale Price Index (WPI) in India and the US. There are differences in the results of CPI and PPI because of price subsidization, profits and taxes adjusted in prices received by producers. The Gross Domestic Product (GDP) deflator is yet another measure of prices of all goods and services included in the GDP. An important consideration while measuring inflation is that no attempt has been made yet to create any capital goods price index while prices of stock, real estate and other assets are also responsible for promoting inflation.

Professional Banker Magazine, Indian economy, Inflation, Consumer Price Index, CPI, Producer Price Index, PPI, Wholesale Price Index, WPI, Gross Domestic Product, GDP, Cash Reserve Ratio, CRR, Prime Lending Rate, PLR, Reserve Bank of India, RBI.