Retail Inflation (Consumer Price Index – CPI)

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)

1. Repo Rate: Increases loan interest rates to reduce spending.
2. Reverse Repo Rate: Makes banks keep more money with RBI, reducing market cash.
3. Cash Reserve Ratio (CRR): Forces banks to keep more money with RBI, limiting lending.
4. Open Market Operations (OMO): RBI sells government securities to absorb extra cash from the market.
5. Policy Stance: Tightening monetary policy to focus on controlling prices.

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