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Objective Of Consumer Price

Index

To measure the impact of price change on thepurchasing power of the after tax money incomes

of wage and salary earner households.

Focus was to track inflation

Helps in Monetary policy to take decisions , to

control inflation

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Methodology

Given - Consumer Price Index, Wages

To Calculate: Real wages , Purchasing

power

Purchasing Power

= (1/Consumer Price Index) 100

Real Wages

= (Wages/Consumer Price Index) 100

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Statement Of Business ScenarioGeneral Price level,Measurement Consumer price Index(CPI), Wholesale price Index(WPI),

GDP deflator Each is a weighted average of several prices & is

presented in the form of index numbers.

CPI signals changes in prices facing the consumers.

We are explaining annual movement in general pricelevels in India. Table summarizes the Data and thechart shows the trends in prices.

Indian Scenario

Priceindex

Basis Prices Basket Weights Lag

CPI p1q0

p1q0

Retail Consumptio

n

Goods and

Services.Includes

Fixed

Quantity

weights

Two

months

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Year Average Weekly

Wages-IW

Consumer Price

Index

1993-93 156 167.2

1994-95 173 187.0

1995-96 189 208.3

1996-97 209 231.8

1997-98 278 310.2

1998-99 312 384.1

Wages of Industrial Workers(Average ) of India

This table shows the Average weekly wages of

Industrial workers of India and CPI

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(a)Shown in the Table

(b)The Industrial Workers have the greatest buyingpower in 1993-94

(c)The %tage Increase in the weekly wages for theyear 1998-98 required to provide the same buying

power that the employees had in 1993-94 :absolute difference i.e. 93.30 81.22 = 12.08

Results & Findings

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Importance of CPI In Business

It helps to formulate Economic Policy, Escalate

income payments & measure real earnings.

It also measures purchasing power of the consumer

in Rs. The purchasing power of the rupee is the

value of a rupee in a given year as compared to abase year.

When a time series is concerned with such rupee

values as retail sales amounts or wage rates the

price index is more frequently used to achievedeflation of such time series.

The CPI is used in wage negotiations and wage

contracts.

It also helps in automatic adjustment of wages or the

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Conclusion We are explaining annual movement in general

price levels in India. Table summarizes the Dataand the chart shows the trends in prices.

CPI data are reported for Industrial Workers.

Table shows the movement in prices between1993-94 and 1998-99. Though the annualpercentage change varies across differentindices, the direction of change is similar.

The Weekly wages are increasing but Real Wagesare Decreasing.