At 3.4%, the CPI is only slightly higher than February’s 3.21%. However, food inflation rose at a faster clip of 3.87%, up from 3.47% in February. (PTI photo)
Take a look at the essential concepts, terms, quotes, or phenomena every day and brush up your knowledge. Here’s your knowledge nugget on inflation, consumer price index (CPI), wholesale price index (WPI), and the Index of Eight Core Sector Industries.
(Relevance: In UPSC Prelims, questions have been asked on these static economic terms. Since the change in the base year of the CPI, the topic has been in the news. Therefore, it is important to comprehensively understand this topic and these terms.)
India’s headline inflation rate, as measured by the Consumer Price Index (CPI), rose to 3.4% in March, as the impact of the war in West Asia was only felt in small pockets and to a limited extent, according to data released by the Ministry of Statistics and Programme Implementation (MoSPI) on Monday.
At 3.4%, the CPI is only slightly higher than February’s 3.21%. However, food inflation rose at a faster clip of 3.87%, up from 3.47% in February.
Let’s understand these static economy terms for your UPSC Prelims 2026.
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Inflation and its impact on the cost of living
1. Inflation refers to the rate at which the general price level for goods and services increases over a period of time, causing a decrease in purchasing power of money or real income. In other words, as inflation rises, each unit of currency can buy fewer goods and services than before.
2. Rising inflation affects the financial well-being of households, especially those with lower incomes or fixed incomes. As the cost of goods and services increases, it reduces the quantity of goods and services that can be purchased with the same nominal income, thereby affecting households’ cost of living.
3. The real interest rates are also affected due to rise in inflation. Real interest rate is essentially derived after subtracting the inflation rate from the nominal interest rate (what the bank pays you). If the nominal interest rate is 10 per cent and inflation is 8 per cent then the real interest will be 2 per cent.
Real Interest = Nominal Interest Rate — Inflation Rate
Therefore, with rising inflation, the real interest rate goes down, which might discourage people from saving because the value of their money doesn’t grow as much.
1. CPI inflation, which measures the change in consumer prices of hundreds of goods and services in a given month compared to the same month in the previous year, is the most important economic indicator in the country as it directly influences the level of interest rates set by the Reserve Bank of India (RBI).
2. In February, the Ministry of Statistics and Programme Implementation (MoSPI) released the new CPI with an updated base year of 2024, replacing 2012 as the base year. The 2024 series has replaced the earlier structure comprising six broad groups—Food and beverages, Pan, tobacco and intoxicants, Clothing and footwear, Housing, Fuel and light, and Miscellaneous (services such as education, health care etc.).
3. In CPI 2024, a basket of 358 goods and services is there which is more than 59 goods and services of the erstwhile basket. The expenditure is classified into 12 divisions at the first level, 43 groups, 92 classes, 162 subclasses, enabling, and 358 items at the last level of hierarchy. It has included rural house rent for the first time to improve coverage of rural housing consumption.
Consumer Price Index with weight-age and inflation in the month of March, 2026. Source: MoSPI
4. Wholesale Price Index (WPI): While the CPI measures the price changes in the retail market (maximum retail prices{MRP}, inclusive of taxes), the WPI measures the price changes in the wholesale market. Say, for example, the price of a commodity (such as onions) would vary depending on the fact that it is bought from the wholesale market or retail market.
5. The CPI-based inflation data is compiled by the MoSPI and the WPI-based inflation data is put together by the Department for Promotion of Industry and Internal Trade (DPIIT).
6. The base year of the WPI is 2011-12. The concept of wholesale price has hitherto covered the general idea of capturing all transactions carried out in the domestic market. The weights of the WPI do not correspond to the contribution of the goods concerned either to value- added or final use. It comprises 697 items which is broadly classified into three components.
| Components | Weight (in %) |
| Primary Articles | 22.62 |
| Fuel & Power | 13.15 |
| Manufactured Products | 64.23 |
The WPI data for March will be released on 15th April, 2026.
7. A key difference that must not be missed is that the WPI does not take into account the change in prices of services — say a haircut or a banking transaction. But CPI does.
8. If services such as transport, education, recreation and amusement, personal care etc. get significantly costlier, then retail inflation will rise but there will be no impact on wholesale price inflation.
1. The Office of Economic Adviser within the Department for Promotion of Industry and Internal Trade releases the Index of Eight Core Industries (ICI). It increased by 2.3 per cent (provisional) in February 2026 as compared to the Index in February, 2025. The base year is 2011-12.
2. The ICI measures the combined and individual performance of production of eight core industries viz. Coal, Crude Oil, Natural Gas, Refinery Products, Fertilizers, Steel, Cement and Electricity.
3. According to the Ministry of Commerce and Industries, the Eight Core Industries comprise 40.27 percent of the weight of items included in the Index of Industrial Production (IIP). The Petroleum Refinery Products has maximum weightage with 28.04 per cent.
4. Since these eight industries are the essential “basic” and/or “intermediate” ingredient in the functioning of the broader economy, mapping their health provides a fundamental understanding of the state of the economy. In other words, if these eight industries are not growing fast enough, the rest of the economy is unlikely to either.
| Components | Weight (in %) Total 40.27 % |
| Coal | 10.33 |
| Crude Oil | 8.98 |
| Natural Gas | 6.88 |
| Petroleum Refinery Products | 28.04 |
| Fertilizers | 2.63 |
| Steel | 17.92 |
| Cement | 5.3 |
| Electricity | 19.85 |
(1) In the ‘Index of Eight Core Industries’, which one of the following is given the highest weight? (UPSC CSE 2015)
(a) Coal production
(b) Electricity generation
(c) Fertilizer production
(d) Steel production
(2) Consider the following statements: (UPSC CSE 2020)
1. The weightage of food in the Consumer Price Index (CPI) is higher than that in the Wholesale Price Index (WPI).
2. The WPI does not capture changes in the prices of services, which CPI does.
3. The Reserve Bank of India has now adopted WPI as its key measure of inflation and to decide on changing the key policy rates.
Which of the statements given above is/are correct?
(a) 1 and 2 only
(b) 2 only
(c) 3 only
(d) 1, 2 and 3
| Answer key |
| 1. (b) 2. (a) |
(Sources: How inflation affects cost of living, Why CPI with new base year 2024 matters for UPSC exam, Everyday Economics: What are WPI and CPI inflation rates?)
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