Question

As the aftermath of the COVID-19 pandemic many people in the world have experienced a decrease in income. Do you think consumer price index will be lower or higher this year? Explain why? Also, comment if you consider the officially reported value of inflation will be objective. What economic concepts support your answer?

Answer 1

Aftermath of COVID-19 pandemic:- Many people have lost their jobs or seen their incomes cut due to the coronavirus crisis. Unemployment rates have increased across major economies as a result.

In US, the proportion of people out of work has hit 10.4% according to the International Monetary Fund, signalling anend to a decade of expansion for one of the world's largest economies.

Millions of workers have also been put on government supported job retention schemes as parts of the economy, such as tourism or hospitality, came to a stand still under lockdown .

what is Consumer price index:- Measures changes in the price level of a weighted average mareket basket of consumer goods and services purchased by household.

it is one of several price indnices calculatd by mostnatinal statistical agenies. Tthis annual percentage chage in a CPI is used as a measure of inflation. A CPI can be used to index the real value of wages, salaries, and pensions; to regulate prices; and to deflate monetary magnitudes to show changes in real values. In most countries, the CPI, along with the population census, is one of the most closely watched national exonomic statistics.It is calculated and reported ona per region or country basis on a monthly and annual basis. International organizations like the organisation for economic Co- operation and Development report statistical figures like the consumer price index for many of its member countries. In the US the CPI is usually reported by the Bureau of Economic analysis.

Comsumer price index higher or lower this year:-Inflation, or the rate of price rise, it sconstantly in the news. Last month, inflation as measured by consumer price index came in at a multi year high of 5.5%

Inflation is calculated on the basis ofchange in prices of a standared basket of goods and services. All these goods and services have a certain weight in the inflation index. food product have the maximum weightage in the consumer price index. They form around 39.06% of the overall index. In urban india, the weight of food products in the index is lower at 29.62% and in rural india, it is higher a t 47.25%

Last month, the food inflation was 10%. In rural india it was 8.8% and in urban india 12.3%. The vegetable inflation jumped 36% and pulses inflation to 13.9%. Pulse are an important source of protein for a lorge part of the population. Meat and fish, other important source of protein saw an inflation of 9.4% in novermber 2019

AS income rise, items other than food start to matter more, and a greater proportion of the income is spent on thse items. If you are a middle class paent with two school going children, the proportion of money you spend on your children is probably much more than the money you spend on food.

Along with scshool fees, these days money has to be spent for tuitions, activity classes and so on.The education inflation in November 2019 was 5.2%

Also, a significat portion of the salary is likely to go towrds recreation and buying new gadgets etc.

This rate of inflation depends on how much money we are making at a givenpoint of life because that determines out consumption pattern. It also depends on which stage of our lives we are in. And it's always a good to have an overall idea of where exactly the money earned is being spent.

Officially Value of inflation: - As prices rise, a single unit of currencty loses value as it buys fewer goods and services. This loss of purchasing power impacts the general cost of living for thecommon public which ultimately leads to a deceleration in economic grwoth. The consensus view among economists is thhat sustained inflation occurs when a nation's money supply grwoth outpaces economic growth.

Inflation is measured in a variety of ways depending upon thet types of goods and services considered and is the opposite of deflation which indicates a general decline occuring in prices for goos and services when inflation rate falls below 0%

Rising prices are the root of inflation, though this can be attributed to different factors. In the context ofcauses, inflation is classified in to three types: Demand pull inflation, cost push inflation, and built in inflation..

How is inflation measurd?:-

In india, inflation is primarily measured by two main indices -WPI( wholesale price index) and CPI, which measure wholesale and retail level price changes, respecively. The CPI calaculates the difference in the price of commodities and services such as food, medical care, education, electronics etc, which indian consumers buy for use.

On the other hand, the goods or services sold by businesses to smaller bsinesses for selling further is captured by the WPI. In india, both WPI and CPI are used to memasure inflation.