India’s retail inflation rate decreased to 6.83% in August 2023, down from a 15-month high of 7.44% in July. This drop was primarily due to lower food prices, particularly in vegetables. However, it remains above the Reserve Bank of India’s medium-term inflation target range of 4+/-2%. Inflation, the rise in prices over time, erodes purchasing power. India uses two key indices to measure inflation: the Consumer Price Index (CPI) for retail prices and the Wholesale Price Index (WPI) for wholesale-level price changes. The country’s GDP growth outlook faces challenges due to slowing global economy, high oil prices, and climate change.
Facts/Terms for UPSC Prelims
- Consumer Price Index (CPI): The CPI is a measure that tracks the average price changes of a basket of goods and services at the retail/consumer level. It is a crucial indicator used to assess inflation’s impact on the average consumer’s cost of living.
- Wholesale Price Index (WPI): The WPI is an index that monitors and records price fluctuations of goods at the wholesale level before reaching retail markets. It helps gauge inflationary pressures in the early stages of the supply chain.
- Monetary Policy Committee (MPC): The MPC is a committee established by the Reserve Bank of India (RBI) responsible for setting India’s benchmark interest rate and ensuring price stability. It was formed to bring transparency and accountability to the monetary policy decision-making process.
- Potential GDP Growth Rate: The potential GDP growth rate is the sustainable rate at which an economy can expand without causing excessive inflation. It represents an economy’s capacity for growth without overheating.
- Inflation Targeting: Inflation targeting is a monetary policy framework in which a central bank, like the RBI, sets specific inflation targets as its primary policy objective. The goal is to maintain price stability within a predefined range to support economic growth.
