Inflation in financial year 2021-22 has been a great concern for India. It has stood above 10 % in the FY 21-22 , rising to a record 13.11 % in February.

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Office of the Economic Adviser  says

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The Office of the Economic Adviser (EA), Department for Promotion of Industry and Internal Trade in the Ministry of Commerce and Industry in a statement pointed out that the high rate of inflation in February 2022 is primarily due to rise in prices of mineral oils, basic metals, chemicals and chemical products, crude petroleum & natural gas, food articles and non-food articles, etc. as compared to the corresponding month of the previous year

The persistent geopolitical tensions has lead to disruptions in global supply,rising prices of international commodity,they added. ICRA also pointed to the global surge in commodity prices, including crude as well as edible oils, as the ‘chief risk to the WPI inflation trajectory’ and expects March wholesale inflation to be at a high level between 13% and 14%.

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Understanding Inflation

 Inflation is basically the decrease in purchasing power of money. For example:- If you are able to buy 1 litre milk in Rs. 55 in 2022. You might not be able to buy same quantity of milk after two years or so. 

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Inflation Index

In India, broadly three indices are there.

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GDP Deflator 

GDP Deflator is the ratio of nominal GDP and real GDP. 

Let us understand the difference between nominal GDP and real GDP through a simple example,assuming wheat is the only commodity in the economy.

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We notice that 

1. In 2021 , The value of goods produced increased by Rs. 30. 

2. In 2022 , the value of goods produced increased by Rs. 22.

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But in FY 21-22 , there was not any increase in production of wheat. GDP increased because price of wheat increased. This GDP ( Rs. 352 ) is known as nominal GDP. Now, you consider the price of  wheat in a specific year as base price. ( Say of year 2020) So, multiply the wheat produced with Rs. 30 to get real GDP.

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In short, Real GDP includes the effect of inflation while nominal GDP does not. By default, a GDP data indicates real change in GDP.

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Consumer Price Index (CPI) 

A consumer price index is a retail inflation index.  It is calculated as weighted average prices of goods and services purchased by household sector. It is basically the inflation index at a consumer's level.

There are several types of CPI based on which commodities you are taking, Like if you are targeting rural economy, you will take commodities used by rural people. This is known as CPI Rural. Similarly,there are many types of CPI.

Simplified :- Suppose you bought a basket of commodity from a shop in 2021 and it costed you Rs. 6000 and when you bought the same basket of commodity in 2022 , it costed you Rs. 6,500. Notice that the cost increased by Rs. 500. This inflation is captured in CPI 

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Wholesale Price Index(WPI)

A wholesale price index (WPI) is an index that measures and tracks the changes in the price of goods in the stages before the retail level. Simply put, it is inflation in the wholesale level. 

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Simplified :- Go to wholesale market and note the price of certain commodity in Mar 2022 , now go to same market in April 2022. Notice the change in prices. This amounts to wholesale price index(WPI).

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The default index of inflation is CPI Combined ( Rural and urban India ). So, if nothing is mentioned, assume that the inflation is CPI Combined.

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For detailed read, You may visit Inflation Index

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