Rising prices affect everyone, but not equally. This article covers how India measures inflation, and how policy tries to control it.
MCQ QuestionsIndian Economy
India’s CPI Inflation, June 2026
Food inflation is running well above the headline rate
✊ Must Know
1. What inflation is, and how India measures it
- Definition Inflation is a sustained rise in the general price level over time. It reduces how much a fixed amount of money can actually buy.
- CPI India tracks inflation mainly through the Consumer Price Index (CPI). CPI measures price changes for a fixed basket of goods and services bought by households.
- WPI The Wholesale Price Index (WPI) measures price changes at the wholesale, not retail, level. India shifted to CPI as its main policy target in 2014, since it better reflects what consumers actually experience.
2. Demand-pull vs cost-push inflation
- Demand-pull Demand-pull inflation happens when demand outpaces supply. Too much money chases too few goods, and prices rise as a result.
- Cost-push Cost-push inflation happens when rising input costs, like oil prices, push up prices. This can happen even without any extra demand in the economy.
📘 Good to Know
1. How the RBI controls inflation
- Tool The RBI’s Monetary Policy Committee (MPC) uses the repo rate as its main tool to control inflation. Raising the repo rate makes borrowing costlier, which cools demand and slows the pace of price rises.
- Target The MPC targets 4% CPI inflation, within a 2-6% tolerance band, under India’s inflation-targeting framework. This gives the RBI a clear, publicly stated goal to act against.
- Mechanism A higher repo rate raises the cost of bank borrowing, which pulls money out of circulation as loans slow. Less money chasing the same goods eases upward pressure on prices.
- Review Inflation targeting is periodically reviewed. The government and RBI jointly renew or revise it, so it is not a permanently fixed rule but a framework set for defined multi-year periods.
2. Core inflation, and who inflation hurts most
- Core inflation Core inflation excludes volatile items like food and fuel from the price basket. It gives policymakers a clearer signal of underlying, persistent inflation pressure, separate from short-term price swings.
- Fixed incomes High inflation hurts fixed-income earners more than others — pensioners, and salaried workers on fixed wages. Their income does not automatically rise with prices.
- Deflation Deflation, a general fall in prices, sounds positive but can be economically damaging too. People delay spending as they wait for prices to fall further, which then slows growth.
Test Yourself
🌟 Great to Know
1. Stagflation
- Definition Stagflation is the unusual combination of high inflation and stagnant growth together. Standard economic theory once considered this combination nearly impossible.
- Why unusual Inflation typically rises during strong growth, not during weak growth. Stagflation breaks that expected pattern, which is why it puzzled economists when it first appeared.
2. Why India’s food inflation swings so much
- Basket weight India’s food inflation is unusually volatile compared to many economies. Food carries a very large weight in the CPI basket, so food-price swings move the headline number a lot.
- Monsoon link Agricultural output swings with monsoon rainfall each year. A weak or delayed monsoon can push food prices up sharply, feeding straight into the overall inflation rate.
📰 Current Affairs
1. CPI base year revised to 2024=100
- Announcement On 29 July 2026, in a Lok Sabha reply, MoSPI confirmed it revised the CPI’s base year, from 2012=100 to 2024=100. The new series was released on 12 February 2026. (Source: PIB)
- Basket The revised basket now has 358 weighted items nationally, up from 299. Goods rose from 259 to 308 items, and services from 40 to 50. (Source: PIB)
- Data source The new weights come from the 2023-24 Household Consumption Expenditure Survey (HCES). MoSPI also now tracks 12 online markets, in cities with over 25 lakh people each, to capture e-commerce prices. (Source: PIB)
- Comparability Under the new CPI 2024 series, inflation data starts from January 2026. The old CPI 2012 series runs only through December 2025 — the two aren’t directly comparable, given changes to the basket, weights, and methodology. (Source: PIB)
- Expert Group An Expert Group Report on the revision was released on 29 January 2026, ahead of the new series’ first index. It aimed to help states, banks, and researchers understand the changes. (Source: PIB)
2. June 2026 CPI inflation data
- Headline India’s provisional CPI inflation for June 2026 rose to 4.38%, up from 3.93% in May, driven mainly by higher food prices. (Source: PIB, MoSPI, 13 Jul 2026)
- Food/rural/urban Food inflation reached 5.32% in June 2026, well above the headline rate. Rural inflation (4.74%) continued to run higher than urban inflation (3.92%). (Source: PIB, MoSPI)
- Housing Housing inflation held much lower, at 2.10% nationally in June 2026 — 2.66% in rural areas and 1.90% in urban areas. (Source: PIB, MoSPI)
- Items Potato prices kept falling year-on-year, down 20.34% in June 2026. Silver jewellery (133.21%) and ginger (50.41%) posted the sharpest increases among tracked items. (Source: PIB, MoSPI)
- Coverage MoSPI collected real-time prices from 1,407 urban markets and 1,465 villages nationwide for the June 2026 release, with a 100% response rate. The next release, for July 2026, was due on 12 August 2026. (Source: PIB, MoSPI)
3. WPI base year revised, and a new PPI launched
- WPI revision India also revised the base year of the Wholesale Price Index (WPI), from 2011-12 to 2022-23. The revision was approved on 25 May 2026, and the new series was released on 15 June 2026, by the Office of the Economic Adviser, DPIIT.
- Basket The WPI’s commodity basket expanded from 697 items to 957 items. Weights now use Gross Value of Output, replacing the old Net Traded Value method, and solar and wind power were added to the Electricity group.
- New index Alongside the revised WPI, India launched a new Producer Price Index (PPI), in three parts: Output PPI, Input PPI, and Service PPI.
4. June 2026 WPI inflation data
- Headline India’s WPI inflation reached 9.87% in June 2026, up from 9.68% in May. Mineral oils, food articles, and basic metals drove most of the rise. (Source: PIB, Ministry of Commerce and Industry, 14 Jul 2026)
- Food & fuel The WPI Food Index rose 6.14% in June 2026, up from 4.49% in May. Fuel and Power inflation ran far higher still, at 27.41%. (Source: PIB)
- Revision April 2026’s WPI inflation was revised upward, from a provisional 8.26% to a final 8.36%. (Source: PIB)
- PPI readings The new Output PPI stood at 109.9 in June 2026, up from 109.6 in May. The trial Input PPI for manufacturing came in at 107.1, still provisional. (Source: PIB)
📝 Previous Year Questions
UPSC CSP 2021 — What Causes Demand-Pull Inflation
- UPSC 2021 The correct answer is (a) 1, 2 and 4 only. Expansionary policies and fiscal stimulus both raise aggregate demand. Higher purchasing power does the same, directly.
- UPSC 2021 Inflation-indexing wages is wrong here. It reacts to inflation already happening, through a wage-price spiral. That is a cost-push mechanism, not demand-pull.
- UPSC 2021 Rising interest rates is also wrong. Higher rates discourage borrowing and spending, which cools demand rather than fuelling it. See UPSC CSP 2021 GS Paper I, Q12.
UPSC CSP 2020 — CPI vs WPI Weightage and RBI’s Inflation Target
- UPSC 2020 Statement 1 is correct. CPI gives food a much higher weight than WPI does. CPI’s food weight is about 45.9%, against WPI’s 24.4%.
- UPSC 2020 Statement 2 is correct. WPI leaves out services prices entirely. CPI includes services, so it better tracks a household’s real cost of living.
- UPSC 2020 Statement 3 is wrong. The RBI does not use WPI for inflation targeting. Since April 2014, the RBI has targeted CPI (Combined), not WPI. So only statements 1 and 2 are correct, giving answer (a) 1 and 2 only. See UPSC CSP 2020 GS Paper I, Q67.
UPSC CSP 2015 — Which Statement on Controlling Inflation Is Correct
- UPSC 2015 The correct statement is (c) — decreased money circulation helps control inflation. Tighter money supply cools demand, which eases upward pressure on prices; the RBI does this mainly by raising the repo rate. Statement (a) is wrong, since the RBI shares responsibility for controlling inflation, not the Government alone. Statement (b) is wrong for the same reason, in reverse — the RBI has a central, not absent, role. Statement (d) reverses the real relationship: increased money circulation raises inflation, it does not control it. See UPSC CSP 2015 GS Paper I, Q87.
UPSC CSP 2015 — Who Publishes the Consumer Price Index for Industrial Workers
- UPSC 2015 The correct answer is (c) The Labour Bureau. It sits under the Ministry of Labour and Employment. The Labour Bureau compiles and releases the CPI-IW every month.
- UPSC 2015 CPI-IW mainly decides dearness allowance (DA) for central and state government employees. It also feeds into minimum-wage fixation in scheduled industrial employment. The RBI, the Department of Economic Affairs, and the Department of Personnel and Training do not publish this index. See UPSC CSP 2015 GS Paper I, Q29.
Leave a Reply