New Delhi23 minutes ago
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The government will release retail inflation figures for the month of October today i.e. on 12th November. According to experts, the inflation rate could reach the record low of 0.50% last month. The reason for this is the continuous decline in the prices of food items and the effect of reduction in GST. This inflation rate will be the lowest on the basis of base year 2012.
Earlier in September, retail inflation had come down to 1.54%, the lowest level in almost 8 years. Earlier in June 2017, it was 1.46%, which is the lowest inflation rate till date. There was a decline in the prices of some food items in September. Whereas in August, retail inflation was 2.07%.
What is base year?
- Base year is the year in which prices are considered as base. That is, the average price of things of the same year is given a value of 100.
- Then, the prices of other years are compared with this base year. This shows how much inflation has increased or decreased.
- Example: Suppose your household budget was in 2020 (base year). That year one kg tomato was priced at ₹50. Now in 2025 it will become ₹80. So inflation = (80 – 50) / 50 × 100 = 60% increase. The same formula is used in CPI, but it applies to the entire market.
Why is this important?
- Makes comparison easy: Without a base year, prices will vary from year to year. But if everything is measured in percentage (%) from the base year, then a clear comparison is made between the old and new years.
- Correct estimate of inflation: This tells how fast or slow inflation happened. For example, if inflation increases by 5% from the base year, the government and banks use this to set interest rates.
- Updates old habits: People’s buying habits change with time (e.g. earlier they use bicycles, now they use bikes more). Therefore, the base year is changed every 10-12 years, so that the data does not become outdated.
- Example in India: The base year of retail inflation (CPI) in India is currently 2012. That is, the prices of 2012 are considered as 100 and compared to 2025. If CPI is 150 in 2025, inflation has increased by 50%.
How is the base year chosen and how does it work?
- The government (Ministry of Statistics and Program Implementation in India) usually chooses a new base year every 5-10 years.
- This is a year which is normal, neither there is much drought, nor epidemic, nor much inflation. So that the base is strong.
- In India, starting from 1950-51, then 1960-61, 1982, 1993-94, 2001, 2010, and now 2012.
How does inflation increase and decrease? The rise and fall of inflation depends on the demand and supply of the product. If people have more money they will buy more things. Buying more things will increase the demand for things and if the supply is not as per the demand, the price of these things will increase.
In this way the market becomes vulnerable to inflation. Simply put, excessive flow of money or shortage of goods in the market causes inflation. Whereas if demand is less and supply is more then inflation will be less.
Inflation is determined by CPI As a customer, you and I buy goods from the retail market. The work of showing the changes in prices related to this is done by the Consumer Price Index i.e. CPI. CPI measures the average price we pay for goods and services.
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