Report on Calculation of Inflation in India from 1993-94 to 2009-10 and Its Analysis

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Report on Calculation of Inflation in India from 1993-94 to 2009-10 and its Analysis.

Submitted By:

Heena Vartak
Mita Desai
Rohan Sardessai
Tina Choudhury
Vinay Bhasin
Vicky Khurana

What is Inflation?
Inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects erosion in the purchasing power of money – a loss of real value in the internal medium of exchange and unit of account in the economy. A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index over time. These Indices can be

1. Wholesale Price Index (WPI)
2. Consumer Price Index (CPI)
3. GDP Deflator
Today, most economists favor a low, steady rate of inflation. In this Report we try to find Inflation through all these three indices. All the data used here is sourced from RBI website.

Q1. Calculate the inflation rate based on the wholesale price index, CPI (IW) and GDP deflator for the period of 1993- 1994 to 2009-2010.

The inflation rate is calculated by Whole Sale Price Index is shown as: Wholesale Price Index Annual Average :

Year| Index (Average of Weeks)|
| AC| | |
| | WPI| |
1992-93| 228.7| | |
1993-94| 247.8| 8.35%| |
1994-95| 112.6| 12.60%| |
1995-96| 121.6| 7.99%| |
1996-97| 127.2| 4.61%| |
1997-98| 132.8| 4.40%| |
1998-99| 140.7| 5.95%| |
1999-00| 145.3| 3.27%| |
2000-01| 155.7| 7.16%| |
2001-02| 161.3| 3.60%| |
2002-03| 166.8| 3.41%| |
2003-04| 175.9| 5.46%| |
2004-05| 187.3| 6.48%| |
2005-06| 104.5| 4.50%| |
2006-07| 111.4| 6.60%| |
2007-08| 116.6| 4.67%| |
2008-09| 126| 8.06%| |
2009-10| 130.8| 3.81%| |
2010-11| 143.3| 9.56%| |
2011-12| 156.1| 8.93%| |
| | | |

This data can be plotted against graph as follows:

Representation of WPI over time, where 1, 2, 3.. Represent years 1993-94, 1994-95 and so on. The Consumer Price Index (CPI) can be calculated as below:
Consumer Price Index - Annual Average
Year| IW| CPI (IW)|
1992-93| 240| |
1993-94| 258| 7.50%|
1994-95| 284| 10.08%|
1995-96| 313| 10.21%|
1996-97| 342| 9.27%|
1997-98| 366| 7.02%|
1998-99| 414| 13.11%|
1999-00| 428| 3.38%|
2000-01| 444| 3.74%|
2001-02| 463| 4.28%|
2002-03| 482| 4.10%|
2003-04| 500| 3.73%|
2004-05| 520| 4.00%|
2005-06| 542| 4.23%|
2006-07| 579| 6.83%|
2007-08| 133| 6.40%|
2008-09| 145| 9.02%|
2009-10| 163| 12.41%|
2010-11| 180| 10.43%|
2011-12| 195| 8.33%|
| | |

Representation of CPI over time, where 1, 2, 3.. Represent years 1993-94, 1994-95 and so on GDP Deflator:
The GDP deflator (implicit price deflator for GDP) is a measure of the level of prices of all new, domestically produced, final goods and services in an economy. GDP stands for gross domestic product, the total value of all final goods and services produced within that economy during a specified period.

Unlike some price indexes (like the CPI), the GDP deflator is not based on a fixed basket of goods and services. The basket is allowed to change with people's consumption and investment patterns. (Specifically, for GDP, the "basket" in each year is the set of all goods that were produced domestically, weighted by the market value of the total consumption of each good.) Therefore, new expenditure patterns are allowed to show up in the deflator as people respond to changing prices. The theory behind this approach is that the GDP deflator reflects up to date expenditure patterns. The table is shown below:

| GDP Constant Price| GDP Current Price| GDP Deflator| Inflation| 1993-94| 15223.43| 8179.61| 0.537304011| |
1994-95| 16196.94| 9553.85| 0.589855244| 9.78%|
1995-96|...
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