De-Coding Inflation | Edelweiss Wealth Management

Описание: In this video, Ankita Pathak, our economist at Edelweiss Research Team explains the true meaning and definition of Inflation. She takes you through the basics of inflation, causes of inflation and importance of inflation.

What is inflation?

Inflation is a measure of the changing levels of prices across commodities in an economy. Inflation in an economy is measures basis different indices. The main indices used for measuring inflation are:

1. Wholesale Price Index: It is the measure of prices from the wholesaler to the retailer
2. Consumer Price Index: It is the measure of price from the retailer to the consumer

What is headline inflation and how do we interpret it?

Headline inflation is the raw inflation as reported to consumer price index, which is released typically on the 12th of every month. If headline inflation is at 2%, it means that the prices are higher than the same period last year.

Components of Inflation:

Index of actual prices is measured as weighted average of different commodities. If you consider the average basket of consumption of an average Indian consumer, food takes up most of the space followed by other aspects like miscellaneous (includes health, education), housing, clothing, fuel, etc.

Another important measure of inflation is the core inflation. Core inflation is a measure of inflation except for food and fuel prices. Food and fuel are most volatile components of inflation subject to domestic and global fluctuations.

Importance of Inflation:

Inflation holds key importantance in macro economics because:

1. The interest rates that are cut or increased by RBI is done basis inflation. Eg: If the RBI decides to cut interest rates, it is done because of low inflation.

2. Nominal GDP : Simply put it is the sum of normal GDP plus the inflation.

3. Also your day to day expenses, wage increments and consumption basket all depend on inflation.

It is important to note that 4% inflation good for the economy, it is neither hyper inflation (high levels of inflation) and neither is it stackflation (low levels of inflation)

Edelweiss has its own set of inflation reports that can be accessed through these links:

Research: https://www.edelweiss.in/research
Research Articles: https://www.edelweiss.in/research/art...

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