Definition
CPI Inflation
Consumer Price Index inflation measures the change in retail prices of a basket of goods and services that households typically buy.
In India, CPI is the headline inflation gauge and the one the RBI officially targets, aiming to keep it around 4% within a 2-6% band. Food and fuel form a large part of the basket, making it sensitive to monsoon and global oil prices.
High CPI inflation erodes purchasing power and often prompts the RBI to raise the repo rate, which affects loan EMIs, bond yields and equity valuations. It is one of the most market-sensitive data releases each month.
Related terms
- Repo RateThe repo rate is the interest rate at which the RBI lends short-term money to commercial banks, and it is the central bank's main tool to balance inflation and growth.
- WPI InflationWholesale Price Index inflation tracks the change in prices of goods at the wholesale or producer level, before they reach retail consumers.
- Core InflationCore inflation strips out volatile food and fuel prices from headline inflation to reveal the underlying, more persistent price trend.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.