In the context of Inflation, consider the following statements:

1. Laspeyre Index is used for the calculation of the Wholesale Price Index.

2. When Inflation increases, the real value of the savings falls.

3. Consumer Price Index covers only Goods in the economy.

Which of the statements given above is/are correct?

Solution

● Statement 1 is correct: The Laspeyres Price Index is a consumer price index used to measure the change in the prices of a basket of goods and services relative to a specified base period weighting. A key differentiator between the Laspeyres Price Index and other indices (Paasche Price Index, Fisher Price Index, etc.) is that it uses weights taken from a base period. The Index is used for calculation of WPI, CPI, IIP. ● Statement 2 is correct: When inflation rises, the purchasing power goes down. If inflation outpaces the interest one earns on their savings, it will feel like losing money as the amount one saves or invests from the income every month may not rise at the same rate. ● Statement 3 is incorrect: The Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services. It measures price changes from the perspective of a retail buyer. There are four types of CPI:CPI for Industrial Workers (IW), CPI for Agricultural Labourer (AL), CPI for Rural Labourer (RL) and CPI (Rural/Urban/Combined).