Rising inflation was the most recent ticklish political issue that hit the Manmohan Singh government. But was inflation rising because of price rise in essential commodities? Or was it because of the ‘erroneous method’ of calculating inflation?

Some economists assert that India’s method of calculating inflation is wrong as there are serious flaws in the methodologies used by the government.

Economists V Shunmugam and D G Prasad working with India’s largest commodity bourse — the Multi Commodity Exchange — have come out with a research paper arguing that the government urgently needs to shift the method of calculating inflation.

Saying that there are serious flaws in the present method of calculating inflation, the paper India should adopt methodologies in developed economies.

So how does India calculate inflation? And how is it calculated in developed countries?

  • India uses the Wholesale Price Index (WPI) to calculate and then decide the inflation rate in the economy.
  • Most developed countries use the Consumer Price Index (CPI) to calculate inflation.

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