Consumer Price Inflation

Why in news?

The six-member monetary policy committee of the Reserve Bank of India (RBI), which is meeting for the last time in this financial year, is expected to maintain status quo for the third straight review meeting as retail inflation is hovering

FACTS FOR PRELIMS

CPI

Consumer Price Index (CPI) is based on the final prices of goods at the retail level. Because of the wide disparities in the consumption baskets for different segment of consumers, India has adopted four CPIs

CPI (Industrial Workers)

CPI (Urban Non- Manual Employees)

CPI (Agricultural Labour)

CPI (Rural Worker)

In India, RBI uses CPI (combined) released by CSO for inflation purpose with base year as 2012.

The number of items in CPI basket include 448 in rural and 460 in urban

Both  these indices are the weighted averages of prices of a specified set of  goods and services.

WPI Vs CPI

Data on Wholesale Price Index (WPI) is available every week, while data on Consumer Price Index (CPI) is only available every month, so there is a time lag in CPI data availability compared to WPI data availability, which can impact decision making both for RBI and the Government of India, as the previous answer states.

In India, we do not have one CPI calculated per se. Earlier, there were 4 CPIs calculated for 4 different sets of workers, and now we have three such CPIs, out of which the most famous is CPI for Industrial Workers (CPI-IW). The others used currently are CPI for agricultural laborers and CPI for rural laborers.

The argument used therefore is that there is no one CPI value which can be used for decision making by either RBI or the Government of India.

According to our policy makers/decision makers at RBI and elsewhere, or so it seems, WPI has a broader coverage compared to all the CPIs, in terms of the commodities covered, quotations, larger number of non-agricultural products and tradeable items, which are missing in the CPIs.

Also, interest rates which the RBI controls may not have much of a correlation with high food prices and therefore decision makers may feel that since they can’t target inflation across major sections constituting the CPI, they would rather focus on WPI constituted of goods on whose demand interest rates may have a more significant impact.

 

WPI is calculated on an all India basis, while CPI is calculated for specific centres in India and then this is aggregated to an all India index.

SOURCE – THE HINDU.