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Critical Topics and Their Significance for the UPSC CSE Examination on December 13, 2024
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Retail inflation moderates to 5.5% in November after new high in October
For Preliminary Examination: Inflation, Retail Inflation
For Mains Examination: GS III - Indian Economy
Context:
India’s retail inflation cooled slightly to 5.5% in November from a 14-month high of 6.2% in October, but remained significantly elevated for rural consumers at 5.95%, while dropping to 4.8% for their urban counterparts.
Read about:
Consumer Price Index (CPI)
Wholesale Price Index (WPI)
Inflation
Key takeaways:
Retail inflation refers to the rate at which the prices of goods and services consumed by households increase over a specified period. It is measured based on the Consumer Price Index (CPI), which tracks changes in the prices of a basket of goods and services typically purchased by consumers.
Key Components of Retail Inflation:
- Price Basket Imagine inflation as a shopping basket that represents typical consumer spending. This basket includes:
- Food and beverages
- Housing and rent
- Transportation
- Healthcare
- Education
- Clothing
- Utilities
- Entertainment
- Measurement Methodology The inflation rate is calculated by comparing the current prices of this basket with prices from a previous period, typically:
- Month-to-month changes
- Year-on-year comparisons
- Percentage change in overall basket price
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Importance:
- Indicates the purchasing power of consumers.
- Helps policymakers, especially the Reserve Bank of India (RBI), decide on monetary policy measures like interest rate adjustments.
- Impacts household budgets, particularly for middle- and lower-income groups.
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Causes of Retail Inflation:
- Demand-pull factors: Excessive demand in comparison to supply.
- Cost-push factors: Increase in the cost of production inputs (e.g., fuel, raw materials).
- Supply chain disruptions.
- Seasonal variations in the prices of essential goods like vegetables and fruits.