Context:
In July 2025, retail inflation in India dropped to 1.55% – the lowest in 8 years. This is well below the RBI’s target range of 2% to 6% and has now stayed under 4% for six months in a row. The main reason is the fall in food prices.
What is Retail Inflation (Consumer Price Index – CPI)?
Retail inflation measures the average change over time in the prices that consumers pay for a basket of goods and services. It reflects the cost of living and purchasing power of households.
- In India, we measure it through the Consumer Price Index (CPI).
- It includes items like food, clothes, housing, transport, and fuel.
- It shows how much our cost of living is changing.
- Base Year: Currently 2012 (in India).
Wholesale Inflation (Wholesale Price Index – WPI)
Wholesale inflation measures the average change in prices of goods at the wholesale level (bulk transactions between businesses), before they reach the retail market.
- Base Year: Currently 2012 (in India).
- Categories Covered in CPI:
- Food & Beverages
- Clothing & Footwear
- Housing
- Fuel & Light
- Miscellaneous (education, healthcare, transport, etc.)
What is Inflation?
Inflation is the rate at which prices rise in the economy, which reduces the value of money.
- Demand-pull inflation: When demand for goods is more than supply.
- Cost-push inflation: When production costs go up and prices rise.
How RBI Controls Inflation (Monetary Policy Tools)
- Repo Rate: Increases loan interest rates to reduce spending.
- Reverse Repo Rate: Makes banks keep more money with RBI, reducing market cash.
- Cash Reserve Ratio (CRR): Forces banks to keep more money with RBI, limiting lending.
- Open Market Operations (OMO): RBI sells government securities to absorb extra cash from the market.
- Policy Stance: Tightening monetary policy to focus on controlling prices.
