Measures of Inflation in India

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Authors

  • Deepika Goel
     Associate Professor, Aryabhatta College, University of Delhi, New Delhi – 110021 ,IN

DOI:

https://doi.org/10.18311/jbt/2018/21171

Keywords:

CPI Inflation, Granger Causality, Impulse Response Function, Inflation, WPI Inflation, FEVD, VECM
Inflation

Abstract

This paper brings out the salient features of different measures of inflation in India. Before adopting the flexible inflation targeting framework, RBI focused on using Wholesale Price Index (WPI) as the measure of headline inflation. Consumer Price Index for Industrial Workers (CPI-IW) was the widely used measure of CPI inflation. International practice however, suggests the use of CPI as the measure of headline inflation. There are also limitations of using WPI as a measure of inflation. Hence, Central Statistics Office (CSO), launched a new measure of CPI, known as CPI-Combined which incorporates all Indian rural and urban households. Stylized facts used in the paper show that inflation dynamics in India is characterised by a divergence between CPI-IW and WPI indices. Against this backdrop, the paper examines Granger Causality between the two indices in a Vector Auto Regressive framework. Results of the study indicate that there is bidirectional causality between the two indices which does not get affected even during the period of global financial crisis, when the divergence between the two indices was observed for the longest duration.

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Published

2018-08-02

How to Cite

Goel, D. (2018). Measures of Inflation in India. Journal of Business Thought, 9, 24–45. https://doi.org/10.18311/jbt/2018/21171

Issue

Volume 9, April 2018 - March 2019

Section

Articles

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All the articles published in JBT are distributed under a creative commons license. The journal allows the author(s) to hold the copyright of their work (all usages allowed except for commercial purpose).
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Europe PMC
Received 2018-05-15
Accepted 2018-05-31
Published 2018-08-02

 

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