Is CPI Generated from Stationary Process? An Investigation on Unit Root Hypothesis of India's CPI

In this paper, the Consumer Price Index (CPI) of India is tested on whether it is generated from a stationary process for the purpose of which, a set of time series data on CPI with 4,420 observation arranged on daily basis from November 10, 2003 to December 16, 2015 is retrieved from the official website of National Bureau of Economic Research. The testing procedure includes fitted OLS regression on which the Augmented Dickey Fuller (ADF) and Phillips-Perron (PP) unit root test are computed. The statistical analysis of both ADF and PP exhibit a smaller test statistic value for CPI than the critical value at 0.05 which means that CPI is not generated from a stationary process and it follows unit root at level, though, it does not follow unit root and it is stationary at its first difference. Therefore, we reject the null hypothesis in favor of the alternative