Inflation and its Types Notes for SSC Exams: CPI, WPI, Causes and Control

Inflation is one of the most important topics of the Indian economy in SSC exams. Every year, questions come on the meaning of inflation, the types of inflation, the difference between the CPI and the WPI, the base year of the indices and the RBI's inflation target. These inflation and its types notes for SSC explain the whole topic in simple language with tables, formulas and 20 practice questions. Read them with the RBI and Monetary Policy Notes, Fiscal Policy, Budget and Deficits Notes and National Income Notes notes.

What Is Inflation?

Inflation is a continuous and sustained rise in the general price level of the goods and services in an economy over a period of time. As a result, the purchasing power of money falls: with the same rupee, a person can buy less than before. A one-time rise in the price of one item is not inflation.

• Inflation rate = [(Price index of this year - Price index of the last year) / Price index of the last year] x 100.
• Inflation is measured with the help of a price index (CPI, WPI) which is made from a basket of goods and services.
• If the prices fall continuously, it is called deflation. If the rate of inflation falls but the prices still rise, it is called disinflation.
• The Government and the RBI try to keep inflation low and stable, because both a very high and a very low inflation are harmful to the economy.

Causes of Inflation

Types of Inflation

• Stagflation is the situation in which there is high inflation along with a slow growth and high unemployment (it was seen in the 1970s oil crisis).
• Reflation is the deliberate increase of the money supply and the prices after a deflation to revive the economy.
• Skewflation is the situation in which the prices of some goods rise very fast while the others do not.
• Phillips curve: shows the inverse relation between the inflation and the unemployment in the short run.

Measuring Inflation in India: CPI vs WPI

• CPI-IW (for the Industrial Workers) is published by the Labour Bureau and is used for the Dearness Allowance of the government employees. CPI-AL and CPI-RL are for the agricultural and the rural labourers.
• GDP deflator is the broadest measure of the price change in the whole economy.
• The RBI follows flexible inflation targeting since 2016 on the basis of the CPI (combined): the target is 4 percent with a band of 2 to 6 percent (Urjit Patel Committee, 2014).
• As per the reports of the RBI policy of October 2026, the RBI projected the CPI inflation of about 5.2 percent for 2026-27.

Effects of Inflation

Real interest rate = nominal interest rate - inflation rate.

How to Control Inflation

• A rise in the repo rate makes the loans costlier, reduces the demand and controls the demand-pull inflation.
• For the cost-push inflation, the supply-side measures work better than the monetary measures.
• See the RBI and Monetary Policy Notes note for the monetary policy tools and the Fiscal Policy, Budget and Deficits Notes note for the fiscal policy.

Deflation and Other Related Terms

Important Questions Explained

Question 1: What is inflation?
Answer: A continuous rise in the general price level of the goods and services over a period of time, which reduces the purchasing power of money.

Question 2: Which inflation is caused by the demand being more than the supply?
Answer: Demand-pull inflation.

Question 3: What is stagflation?
Answer: A situation of high inflation together with a slow economic growth and high unemployment.

Question 4: Which institution publishes the CPI in India?
Answer: The National Statistical Office (NSO), under the MoSPI.

Question 5: What is the inflation target of the RBI?
Answer: 4 percent CPI inflation with a tolerance band of 2 to 6 percent.

Question 6: What is the base year of the WPI?
Answer: 2011-12.

Question 7: What is the real rate of interest?
Answer: The nominal interest rate minus the inflation rate.

Quick Tips to Remember

• Remember the order of the speed: creeping, walking, running, galloping and hyperinflation.
• Remember that the CPI includes the services and the WPI does not.
• Remember that the RBI targets the CPI inflation, and the Dearness Allowance depends on the CPI-IW.
• For the demand-pull inflation, think of the demand; for the cost-push, think of the cost of production.
• The Phillips curve shows the inverse relation between the inflation and the unemployment.
• Learn the formulas: inflation rate and real interest rate.

Common Mistakes to Avoid

• Confusing the inflation (a rise of the price level) with a rise of the price of one item.
• Writing that the WPI includes the services.
• Mixing the stagflation with the hyperinflation.
• Writing that the RBI targets the WPI.
• Thinking that a high inflation always helps the creditors.

Quick Revision Points

• Inflation: continuous rise of the prices; measured by CPI and WPI.
• Types by speed: creeping (below 3 percent), walking (3 to 10), running (10 to 20), galloping (20 and above), hyperinflation.
• Demand-pull vs cost-push; stagflation; core inflation (without food and fuel).
• CPI: NSO, MoSPI, base 2012; WPI: Office of the Economic Adviser, base 2011-12.
• RBI target: 4 percent (2 to 6) CPI since 2016.
• Control: raise the repo rate, CRR and SLR; reduce the government expenditure; increase the supply.

Practice Questions With Answers

1. What is inflation?
   Answer: A continuous rise in the general price level (Fall in the value of money).
2. What is the opposite of inflation?
   Answer: Deflation (Fall of the prices).
3. Which inflation occurs when the demand exceeds the supply?
   Answer: Demand-pull inflation (Too much money).
4. Which inflation occurs when the cost of production rises?
   Answer: Cost-push inflation (Wages and raw material).
5. What is the inflation with the slow growth called?
   Answer: Stagflation (1970s).
6. What is the name of a very high inflation of more than 50 percent a month?
   Answer: Hyperinflation (Germany 1923).
7. What is the inflation excluding the food and fuel called?
   Answer: Core inflation (Underlying trend).
8. Who publishes the CPI in India?
   Answer: NSO (MoSPI) (Monthly).
9. Who publishes the WPI in India?
   Answer: Office of the Economic Adviser (Commerce Ministry).
10. Which index does the RBI target?
    Answer: CPI (4 percent target).
11. What is the inflation band of the RBI?
    Answer: 2 to 6 percent (Around 4 percent).
12. Which index is used for the Dearness Allowance?
    Answer: CPI-IW (Labour Bureau).
13. What is the base year of the CPI series (2012 series)?
    Answer: 2012 (New base is being introduced).
14. What is the base year of the WPI?
    Answer: 2011-12 (Wholesale prices).
15. Which curve shows the relation between the inflation and the unemployment?
    Answer: Phillips curve (Inverse relation).
16. Which Act is used to stop the hoarding of the essential goods?
    Answer: Essential Commodities Act, 1955 (Administrative measure).
17. What happens to the debtors during the inflation?
    Answer: They gain (Repay with less valuable money).
18. What does the RBI do to control the inflation?
    Answer: Raises the repo rate and the CRR (Tight monetary policy).
19. Which committee recommended the inflation targeting in 2014?
    Answer: Urjit Patel Committee (Adopted in 2016).
20. What is the real rate of interest?
    Answer: Nominal rate minus the inflation rate (Formula).

How to Practise This Topic

1. Make a table of the types of inflation with the meaning and the example.
2. Learn the table of the CPI and the WPI, because it is asked very often.
3. Revise the control measures and the effects of inflation the next day.
4. Attempt the practice questions without looking at the answers.
5. Read the latest inflation data in the news and solve the SSC practice papers and the previous year papers.

Related Notes and Practice

• RBI and Monetary Policy Notes
• Fiscal Policy, Budget and Deficits Notes
• National Income Notes
• Union Budget 2026-27 Highlights Notes
• Indian Economy Notes
• SSC practice papers

Frequently Asked Questions

What is inflation in simple words?

Inflation is a continuous rise in the prices of the goods and services, so the same money buys less than before.

What are the main types of inflation?

The main types are the demand-pull inflation and the cost-push inflation by the cause, and the creeping, walking, running, galloping and hyperinflation by the speed.

What is the difference between CPI and WPI?

The CPI measures the change in the retail prices that the consumers pay and includes the services, while the WPI measures the change in the wholesale prices of the goods only.

Which index does the RBI use to target the inflation?

The RBI uses the Consumer Price Index (CPI) for the inflation targeting; the target is 4 percent with a band of 2 to 6 percent.

What is core inflation?

Core inflation is the inflation after removing the prices of the food and fuel, because they change a lot in the short term.

What is stagflation?

Stagflation is the situation in which the economy has a high inflation, a slow growth and a high unemployment at the same time.

What is deflation?

Deflation is a continuous fall of the general price level.

How does the RBI control inflation?

The RBI raises the repo rate, the CRR and the SLR, and sells the government securities to reduce the money supply.

Who gains and who loses from inflation?

The debtors gain and the creditors, the savers and the fixed-income earners lose from inflation.

What is the real interest rate?

The real interest rate is the nominal interest rate minus the inflation rate.

How many questions come from inflation in SSC exams?

Usually 1 or 2 questions come from inflation and price indices in each SSC exam.

How can I prepare inflation for SSC?

Learn the types, the CPI and WPI table, the RBI target and the control measures, and solve the MCQs.