PRICE INDEX:
- The price index is an indicator of the average price movement of a fixed basket of goods and services over time . The basket of goods and services is decided considering whether the changes are to be measured in retail, wholesale, or producer prices etc.
- The basket will also vary for economy-wide, regional, or sector specific series.
- The weights of various items in CPI basket are assigned as per the expenditure by the consumers on different items and these weights remain fixed for next 5/6 years.
- So, this time basket revision is due since 2011-12 but we have not been able to change weights since 2011-12 due to demonetization, GST, Covid.
At present, separate series of index numbers are compiled to capture the price movements at retail and wholesale level in India.
Wholesale Price Index:
- WPI represents the price of goods at a wholesale stage i.e. goods that are sold in bulk and traded between organizations instead of consumers.
- It is released on a monthly basis by Office of the Economic Advisor, in Department of Industrial Policy and Promotion (DIPP) ,Ministry of Commerce &Industry.
- The index basket of the present 2011-12 series has a total of 697 items.
- It includes only goods and not the services.
- The commodities are chosen based on their significance in the region.
- The constituents of WPI in decreasing trend are: manufacturing (64 %) ,(23 %) and (13 %).
- Food index in WPI comprises of 24.38 % constituting food articles from primary and food products from manufacturing indexes.
- WPI is the basis of GDP Deflator.
CONSUMER PRICE INDEX (CPI)---
A consumer price index (CPI) measures changes in the price level of a market basket of consumer goods and services purchased by households.
The CPI is released on a monthly basis on 12th of every month by National Statistical Office (NSO),Ministry of Statistics and Programme Implementation (MOSPI).
Initially,CPI is compiled for the following:
Industrial Workers (IW) (base 2001)
Agricultural Labourer (AL) (base 1986-87)
Rural Labourer (RL) (base 1986-87)
Urban Non-Manual Employees (UNME) (base 1984-85),
- The first three indices are compiled by the Labour Bureau in the Ministry of Labour and Employment.
- The first three are still compiled by The GOI while the fourth index compiled by National Statistical Organisation (NSO) has been discontinued.
- AICPI (IW) is used in calculating the central government Dearness allowance on a quarterly basis.
NEED FOR NEW CPI SERIES:
- These four CPIs reflect the effect of price fluctuations of various goods and services consumed by specific segments of population in the country.
- These indices did not encompass all the segments of the population and thus, did not reflect the true picture of the price behaviour in the country as a whole.
Hence, New Series of CPI was started in 2012.
- The new series, with 2010 as the base year, also includes services, which is not the case with the WPI series.
- Basket comprises of 448 items for rural and 460 items for urban.
- For all India, basket comprises of 299 items.
- Thus, now Central Statistics Office (CSO) of the Ministry of Statistics and Programme Implementation has started compiling a new series of CPI for the :
(a) CPI for the entire urban population viz CPI (Urban);
(b) CPI for the entire rural population viz CPI (Rural)
(c) Consolidated CPI for Urban + Rural will also be compiled based on above two CPIs
Why CPI is better than WPI? :
- CPI reflects price rise driven by potential consumer demand and available supply—is a better indicator of inflation for guiding monetary policy decisions than WPI inflation.
- WPI excludes prices of services such as education, healthcare, and rents. However, services now account for nearly 60 per cent of GDP and a vast majority of these services are not traded with other countries.
- Conversely, the new CPI measure assigns nearly 36% weightage on services and includes price changes in housing, education, healthcare, transport and communication, personal care and entertainment
Producer Price Index (PPI) :
- PPI measures the average change in prices received by the producer and excludes any indirect taxes.
- PPI weights are derived from Supply Use tables covering both goods and services.
- Producer Price Index has replaced Wholesale Price Index in most countries.
- In 2019, GOI constituted a working group for revision of the current series of WPI that has 2011-12 as its base year.
- PPI globally tracks price movements in both goods and services.
- PPI is considered conceptually more consistent with the System of National Accounts for use as deflator.
