Modeling Inflation in India : A Univariate Approach

Abstract

To attain a high level of economic growth with a moderate level of inflation is one of the prime objectives of a developing country. However, a high rate of inflation has become a matter of great concern for many developing countries since the last decade. In India, a high inflation rate has always been an issue of serious concern for the government, policy makers, and academic researchers. In this context, the paper aimed to reach an appropriate diagnosis to understand the nature, structure, and factors responsible for the rise of inflation. The paper focused on the analysis and examination of the monthly inflation spiral of the Indian economy. We used the "Box – Jenkins Methodology" for empirical investigation and the modeling of inflation in India for the monthly WPI data from January 2000 – March 2020. The results of the research indicated that in India, monthly WPI series is non-normal and integrated of order one. Furthermore, research conclusions indicated that the data is integrated of order one, and the estimated ARIMA (1,12–1–0) model fit well with the data and provided essential information for forecasting inflation patterns in India. The model developed as a result of the study can be used as a tool for framing macroeconomic policies as well as can be used in the business decision-making process.