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Inflation : 

Inflation Inflation is a process in which the general price level in a country records a sustained and appreciable increase over a period of time. The rate of increase in the price level is called the rate of inflation. Inflation is different from a price rise inflation is a sustained process whereas price rise ina one time jump, which could be the result of upward, and discrete, price revision due to one-time increase in taxes, cost of production or some other factor like sudden disruption in supply or increase in demand.

Broad characteristics : 

Broad characteristics It is a process and is not instantaneous. It involves a sustained increase in the general level of prices. It has a time dimension that is the process of inflation occurs over a period of time generally taken as one year. It is based on observable and measurable changes in prices. It is a key indicator of the state of business environment and economics performance.

Calculating the rate of inflation : 

Calculating the rate of inflation Selection of the goods and services to be included in the general price index. Selection of the points of time and places at which price statistics will be collected. Deciding the method of average to be applied. Determining the basis on which weights will be assigned to each to set of prices. Deciding the base year. II t = rate of inflation over the year, pt= general price level in year t and pt-1= general price level in the preceding year that is the year t-1.

Important measures of inflation : 

Important measures of inflation 1. (CPI) = The consumer price index 2.(PPI) = Producer price index 3. (WPI) = Wholesale price index

1. The consumer price index (cpi) : 

1. The consumer price index (cpi) It is most widely used index to measure inflation. The index measures the cost of buying a standard basket of goods and services at different points of time. The standard basket is constituted to represent as closely as possible the consumption pattern of the population group in which case the inflation rate calculated is specific to the group and may include food and clothing,housing,fuel,entertainment and other common items of consumption in day to day life.

2. Producer price index (ppi) : 

2. Producer price index (ppi) It measures the general price level at the producer stage. These are generally the prices charged by the producers at the level of their first commercial transaction. These are of course the wholesale prices charged at the first link of the distribution chain. These prices are easy to obtain and monitor. The construction and intreptation of this index is broadly the same as that of the consumer price index.

3. Wholesale price index (wpi) : 

3. Wholesale price index (wpi) It measures the general price index at the level of second or a subsequent commercial transactions but before the transaction at the retail level. Technically, this index stands very close to pp I, which is also based on wholesale prices but is at the first commercial transaction.