What is inflation? how it is calculated?

Question

What is inflation? how it is calculated?

Answer 1

suppose you got 3 pens for rs 20 and after inflation you get 2 pens for rs 20

Answer 2

inflation is when you pay more money for the same quantity within a fixed budget

for eg:

suppose u buy 1 kg rice for 20rs and now ur buying the same 1 kg rice for 40rs and u also have the same budget.

Answer 3

Inflation is a phenonmenon of continuously rising prices of most goods in the economy. Just one shot rise in prices for a temporary period ( due to shortage in supply of goods following a say 10 days sudden strike by tranporters of goods) is not inflation.  Rising prices of just one or two or a few goods prices is also not inflation.

Inflation is measured by the movement in the general price index. There are various price indexes or price indices. Commonly used indexes are the wholesale price index and the Consumer Price Index. To illustrate, the Consumer Price Index is as average level of prices of different commodities with different weights and the average prices are expressed with refrence to the average prices in the base year chosen.

Once one has computed the Price Index value for a given period ( week/ month/ year), the rate of price changfe is worked out as follows:

(Value of Price Index for the current period - Value of the Price Index for the previous period) divided by (Value of the Price Index for the previous period).

Thus, rate of change of the Price Index = [P(t) -P(t-1)]/P(t-1)

where P stands for the value of the Price Index and t for the period. normally this rate of change is expressed in percentage.

If this percentage is positive, it gives the rate of inflation.

If CPI was 150 last year and 165 this tear, the inflation rate for the current year is (165-150)/150= 15/150= 1/10=0.1 = 10%.

Answer 4

Inflation  is an increase in the price of goods  & services that

is a representation of the economy as a whole.

It  is calculated on the  basis of  wholesale price index(WPI)