Consumer Price Index (CPI)

A consumer price index much like a stock market index gives an idea about the situation of the market.It gives an overview of the basket of goods and services that are generally purchased by a household.The index is composed of goods and services which represent items basically needed in every household such as salt,staples,LPG,basic medical facilities,haircut  and transportation.

The price of this basket of times are collected periodically and the change in the price of the goods are tracked on a regular basis.It is tracked on ,quarterly and yearly basis by taking certain prices at a time as the base rate.Each item is given weight on the basis of its requirement and satisfaction that it provides to an individual.

The statistical data that is provided by the index which help the government and other concerned authority to assess the price change associated with the cost of living in a particular country.It determines the standard of living in a particular county when compared against the average earning of a family or each individual.It will hence help ascertain the minimum wage required to sustain a family and take corrective measures to rectify the situation if it is present.

It also is a key index to measure the rate of inflation in the economy.The drastic upward change in CPI during a short period of time typically denotes inflation in the economy and large drops in CPI during a short period of time usually mark periods of deflation.

The consumer price index is also commonly called the cost of living index.In India the index is revised at a regular interval.This function is carried out by the department of economics and statistics and after evaluating it properly the basic dearness allowance(DA) is adjusted in the industrial sector along with other sectors.The index also provides us with key information regarding the additional money required to buy a same service or product which are similar to the ones bought the year before or on basis of the base year.

The index is categorized into various groups and sub groups to better represent particular group of people so that their will be ease in making the plans and policies based upon them.This is done as some needs or requirements will be group or location specific needs.

A lot of money is spent on this index and all measures are taken to take the accurate data to make the index accurate.It is a very good starting point to make plans and policies,it should play a pivotal role in making decisions that will affect the general public especially while considering a price hikes of government controlled commodities.A study of the impact of the change should be understood before taking any decision.

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