1. GDP Deflator
In the calculation of real and nominal GDP of the current year, the volume of production is fixed. Therefore, if these measures differ it is only due to change in the price level between the base year and the current year.
The ratio of nominal to real GDP is a well known index of prices. This is called GDP Deflator.
Thus if GDP stands for nominal GDP and gdp stands for real GDP then,
It is denoted in percentage terms.
| To understand GDP Deflator, We need to understand Real and Nominal GDP Suppose a country only produces bread. In the year 2000 it had produced 100 units of bread, price was Rs 10 per bread. GDP at current price was Rs 1,000. In 2001 the same country produced 110 units of bread at price Rs 15 per bread. Therefore nominal GDP in 2001 was Rs 1,650 (=110 × Rs 15). Real GDP in 2001 calculated at the price of the year 2000 (2000 will be called the base year) will be 110 × Rs 10 = Rs 1,100. In the above Example , the GDP deflator is 1,650/1,100 = 1.50 (in percentage terms this is 150 per cent). This implies that the price of bread produced in 2001 was 1.5 times the price in 2000. Which is true because the price of bread has indeed gone up from Rs 10 to Rs 15. Like GDP deflator, we can have GNP deflator as well. |
2. Consumer Price Index
A Consumer Price Index (CPI) is designed to measure the changes over time in the general level of retail prices of selected goods and services that households purchase for the purpose of consumption.
Such changes affect the real purchasing power of consumers’ income and their welfare.
The basket is based on the expenditures of a target population in a certain reference period. Since the basket contains commodities of unchanging or equivalent quantity and quality, the index reflects only pure price.
Base Year: 2012
The index is published by CSO, MOSPI.
Types of CPI
| CPI for Industrial Workers (CPI-IW) | Compiled by the Labour Bureau. |
| CPI for Agricultural Labourers (CPI-AL) | Compiled by the Labour Bureau. |
| CPI for Rural Labourer (CPI-RL) | Compiled by the Labour Bureau. |
| CPI ( Urban Non-Manual Employees) (CPI-UNME) | The Central Statistics Office (CSO) of MOSPI |
3. Wholesale Price Index
Wholesale Price Index (WPI) represents the price of goods at a wholesale stage i.e. goods that are sold in bulk and traded between organizations instead of consumers.
The main objective of WPI is monitoring price drifts that reflect demand and supply in manufacturing, construction and industry.
WPI is released by the Office of Economic Advisor, Ministry of Commerce and Industry.
Includes goods only and not services unlike CPI which includes both Goods and Services.
| Components of WPI Manufactured products = 65% approx. (64.2% now) Primary articles = 20% approx. (22.6% now) Fuel and power = 15% approx. (13.1% now) |