What is inflation all about?
Inflation is the rate at which prices rise. Basically prices go up due to two factors: cost push and demand pull.
The former occurs due to an increase in production cost, which gets translated into higher price for that item.
The latter takes place when there is too much money with customers relative to the amount of goods available
in the market. In such a situation we have too much money chasing too few goods and prices rise because
people are willing to pay more for the same item. When the item being chased is in short supply, we have
demand pull inflation.

As against inflation, we have deflation, a situation when prices take a tumble. This is a theoretical concept and
something that rarely occurs in developing countries.

What’s the nature of inflation in India?
In India we have a combination of both cost push and demand pull. For instance, the high growth in onion
prices during the BJP regime was demand pull inflation, when the shortage of onions in the market took the
prices to new heights.

Also, prices go up whenever there is a hike in petro prices. Inflation here is due to cost push factors. This is
because petroleum is a vital input in many items and as an essential fuel for road transport, it adds to the
transportation costs and so prices in general tend to rise.

Why do we feel the pinch of rising prices despite low inflation?
While the inflation figures that are published every week refer to wholesale price index (WPI) representing rate
of increase in wholesale prices, what matters to us as individual buyers is the consumer price. Though prices in
the wholesale market have grown at a slow pace (at about 2-3 per cent), comparatively consumer prices
(measured in terms of consumer price index - CPI) have grown at a much faster pace (about 8-9 per cent).
Hence the pinch.

Why is there such a difference between wholesale prices and consumer
prices?
This is due to several factors. A substantial part of the differential is accounted for by the retailers’ margin,
which is built into the consumer’s price. Besides, the way the two indices are calculated differs both in terms of
weightage assigned to products and the kind of items included in the basket.

Why doesn’t the government publish the trend in consumer prices?
While wholesale prices are almost the same throughout the country, retail prices vary across regions (rural and
urban) and also across cities as per the consumer preferences for certain products, supplies and purchasing
power. Besides, taxes levied by states comprise an important component of the variation in prices of many
products.

Therefore, it is felt that it is important to give a more representative picture true for the entire nation.
Therefore, the government sticks to trends in wholesale prices when it talks of inflation.