Measurement of Inflation

Link to Inflation part 1 . Refer to the link before reading this notes.

Measurement of Inflation : 

GDP Deflator : It is measure of general price inflation. It is calculated by dividing Nominal GDP by Real GDP multiplied by 100. 

Real GDP : It is GDP that has been adjusted for inflation. That means Base year GDP.It is adjusted by the impact of inflation.
Nominal GDP : It is GDP adjusted for current year inflation.

 GDP Deflator = (Nominal GDP / Real GDP ) * 100.

Whole Sale Price Index :WPI inflation measures the average change in the price of commodities for bulk sale at the early stage of transactions particulary to 4 sectors : Agriculture, Mining , Manufacturing , Electricity. Weight given to each commodity covered in the WPI basket is based on the value of production adjusted for net imports.
On the recommendation of Abhijit sen committee base year 2011-2012 is being used to measure rate of inflation in India.

Consumer Price Index : 
There are 4 series of CPI :
 1) Industrial Workers  2) Rural Labourers 3) Agricultural Labourer 4) Urban Non Manual Employees

The first three are compiled by the Labour Bureau in the Ministry of Labour and Emploment, and the fourth one is compiled by Central Stastical Organization.  

Producer Price Index :
 Abhijit Sen Committee is working on it . PPI does not take in to account indirect taxes, transport cost and profit margins of traders becuase this index is calculated at the producers level before the commodity reachers the marker so that pricerise if any can be arrested at producers l;evel before its impact reaches the consumers.

Philips Curve : The thoery states that with economic growth comes inflation which in turn should lead to more  jobs and less unemployment.
It shows the relation between the infaltion and unemployment, If inflation increases then unemployment decreases. There is inverse relation.