Inflation

Definition

A sustained rise in the general level of prices in an economy over time, which reduces the purchasing power of money.

Key points

• Measured by indices: the Consumer Price Index (CPI, the RBI's target measure) and the Wholesale Price Index (WPI).
• Types include demand-pull (excess demand) and cost-push (rising input costs).
• The RBI's flexible inflation-targeting framework targets 4 percent CPI inflation, with a band of 2 to 6 percent.
• Controlled mainly by monetary policy: raising the repo rate cools an overheating economy.
• Related terms: deflation (falling prices), stagflation (high inflation plus stagnation).

Why it matters for CAPF

Inflation, the CPI versus WPI distinction, and the RBI's target are high-frequency economy facts, often in statement-based form.

Common confusion

Inflation (rising prices) versus deflation (falling prices); CPI (consumer, RBI target) versus WPI (wholesale); demand-pull versus cost-push.

Parent note

inflation and prices