The correct answer is Consumer price index. Explanation & Key Takeaways: • The two main indicators of inflation in India are the wholesale price index (WPI) and the consumer price index (CPI). • Many developing countries use changes in the consumer price index (CPI) as their central measure of inflation. • In India, CPI (combined) is declared as the new standard for measuring inflation (April 2014). • CPI numbers are typically measured monthly, and with a significant lag, making them unsuitable for policy use. • Inflation is the measured surge in the average prices of goods and services over a longer period in the economy. • It is a macro term in which the impact of inflation on a large basket of goods is seen. • As the value of money is decreased, the cumulative impact of inflation is reported as the buying power of money is reduced. Clarification: • RBI used WPI for most of its policy decisions before 2014. WPI shows the combined price of a commodity basket comprising 676 items. But WPI does not include services, and it neither reflects the bottlenecks between producer and wholesaler nor between wholesaler and retailer (consumer). • Hence from 2014, as part of the reforms initiated by RBI governor Raghu Ram Rajan, RBI shifted to CPI for policy decisions. Important Notes: • Inflation: • A calculated surge in the average prices of goods and services for a longer duration in the economy is called inflation. • It is a macro concept, wherein the effect of inflation is seen over a large basket of goods. • The total effect of inflation is recorded as the value of money is reduced that is the purchasing power of money is reduced. • Creeping, Walking, Galloping and Hyper are types of Inflation. • Creeping Inflation happens when the rate of inflation slowly increases over time. • Creeping Inflation generally ranges from 2% to 4%. • Walking Inflation happens when inflation is in single digits i.e less than 10%. • Walking inflation may simply be referred to as moderate inflation. • Galloping inflation is also known as jumping inflation. • Galloping inflation refers to inflation that proceeds at an exceptionally high.” • Galloping inflation is an inflation rate of between 20% up to 1000% • This is reserved for extreme forms of inflation – usually over 1,000%. Related Concepts: +------------------------+------------------------------------------------------------------------------------------------------------+--------------------------------------------------------------------------------------------------------------------+ | Points | Wholesale price index | Consumer price index | +------------------------+------------------------------------------------------------------------------------------------------------+--------------------------------------------------------------------------------------------------------------------+ | Definition | Amounts are related to the average change in prices of commodities at the wholesale level or market price. | Amounts are related to the average change in the prices of commodities at the retail level or retail market price. | | Commodities | Restricted only to Goods | Restricted to both Goods and Services | | Inflation Measuremen t | At the initial stage of a transaction, inflation is measured | At the final stage of a transaction, inflation is measured | | Base Year | 2011-12 | 2012 | +------------------------+------------------------------------------------------------------------------------------------------------+--------------------------------------------------------------------------------------------------------------------+