Food Items may Shed Weight in CPI Basket

• CPI dominance could decline by up to 6.5 percentage points in rural areas and 3.4 percentage points in urban areas.
• Government panel considering changes to CPI basket and base year inflation series revision.
• CPI last revised in 2011-12 due to inaccuracies in the 2017-18 Household Consumption Expenditure Survey.

Inflation in India: Consumer Price Index (CPI) and Wholesale Price Index (WPI)

Inflation Overview

• Inflation refers to the rise in prices of goods and services of daily or common use.
• It measures the average price change in a basket of commodities and services over time.
• Inflation rate indicates the rate at which prices have been rising in an economy.

Methodology of Inflation

• Inflation is measured by two main indices: WPI (Wholesale Price Index) and CPI (Consumer Price Index).
• CPI measures retail inflation by collecting the change in prices of most common goods and services used by consumers.
• The base year for CPI is 2012.

Wholesale Price Index (WPI)

• Measures changes in prices of goods sold and traded in bulk by wholesale businesses.
• Published by the Office of Economic Adviser, Ministry of Commerce and Industry.
• Widely used inflation indicator in India.
• Criticized for not capturing changes in the purchasing power of a unit of a country’s currency.
• Base year revised from 2004-05 to 2011-12 in 2017.

Consumer Price Index (CPI)

• Measures price changes from the perspective of a retail buyer.
• Released by the National Statistical Office (NSO).
• Calculates the difference in the price of commodities and services.
• Four types: CPI for Industrial Workers (IW), CPI for Agricultural Labourer (AL), CPI for Rural Labourer (RL), and CPI (Rural/Urban/Combined).
• Base Year for CPI is 2012.
• The Monetary Policy Committee (MPC) uses CPI data to control inflation.

Types of CPI

• CPI for Industrial Workers (IW), Agricultural Labourers (AL), Rural Labourers (RL), and Rural/Urban/Combined.
• Compilation by the Labour Bureau in the Ministry of Labour and Employment and the National Statistical Office (NSO).