Inflation means a sustained increase in the aggregate or general price level in an economy, which subsequently leads to an increase in the cost of living.
The primary risk in inflation is that the purchasing power of an individual will be eroded over a period of time.
In other words one will be able to buy less in the future due to inflation. Inflation can be tracked by two indices– Consumer Price Index and (CPI) and Wholesale Price Index (WPI).
Consumer Price Index (CPI) Inflation
It is that measure of consumer prices reflected across a basket of goods and services, typically purchased and consumed by an end-consumer in India. It is the closest measure of inflation for estimating price rise in personal expenses.
Wholesale Price Index (WPI) Inflation
It is a measure that represents the wholesale prices of a basket of goods at their wholesale rates (As opposed to retail rates). Typically this reflects the price of goods sold in bulk and traded between organizations, instead of consumers.