I Am Bald. Is RBI Responsible For That?

**I Am Bald. Is RBI Responsible For That?***

We have already studied a lot about Inflation. Now we know about Retail/Wholesale Inflation,Core/Headline Inflation,Consumer Price Index(CPI) & Wholesale Price Index(WPI) and we also know that RBI targets CPI(combined) based inflation and fixes policy rates(Repo & Reverse Repo) accordingly.

In CPI calculation,we use a fixed basket of goods & services.

**Problem arises here. Suppose CPI based inflation is high.----->Price rise in that basket of commodities i.e. food & beverages,housing,clothing & Footwear,fuel & light etc. These commodities are subsistence needs. That subsistence need commodities may be different for different individuals.

**Suppose a scooter is my essential need for daily commute & price of scooter is decreasing although CPI based inflation is increasing. So my standard of living is not as difficult as reflected by CPI-Inflation. Hence targeting of only CPI-Inflation(by RBI) will not bring the desired effect and it is a false methodology[scooters,toothpaste,toothbrush,hair oil(although I don't have hair),comb(I don't need one),cosmetics,nail polish etc essentials are not reflected in inflation.]

Q)What is the solution?

Ans: Inflation should be measured by GDP Deflator. It measures the changes in prices for all goods & services produced in an economy.

If inflation increases,nominal GDP increases. 

**GDP Deflator= Nominal GDP(taking inflation into account)×100/Real GDP(No inflation in real GDP)

So in this write-up,we have taught Shakti Kanta Das a prescription for correct functioning. 

(TO BE CONTINUED)

BY,HEMEN SARMA

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