Various Indices

1. Wholesale Price Index (WPI)

• • It is brought out by the Economic Adviser in the Ministry of Commerce and Industry on a monthly basis.
  • It takes into account 697 commodities.
  • It does not include services.
  • Base Year- 2011-12 (A base year in any index is given a nominal value of 100 and increase and decrease
  • Gauges inflation from cost of production point of view
  • The prices tracked are ex- factory price for manufactured products, mandi price for agricultural commodities and ex-mines prices for minerals.
  • It does not factor-in the effects of indirect taxes in order to remove the impact of fiscal policy.

WPI: Items and Weights

Products	Items	Weights
Manufactured Products (Chemical, Metals etc)	564	64.23%
Primary Articles (Cereals, fruits, vegetables and minerals)	117	22.62%
Fuel and Power (Coal, electricity and mineral oil)	16	13.15%
Total	697	100%

Note: Weights given to each commodity covered in the WPI basket is based on the value of production adjusted for net imports.

2. Consumer Price Index (CPI)

• • It is brought out by the National Statistics Office (NSO) (under MoSPI) on a monthly basis.
  • It accounts for both goods and services.
  • There is a separate rural and urban basket.
  • CPI- Combined is used by RBI to set policy rates as a part of the Monetary Policy Framework.
  • Base year – 2012
  • Gauges inflation from consumer point of view (Retail Inflation)

Various types of CPI

1. CPI- AL (Agricultural Labour) – It is used to calculate wages for agricultural labourer.

2. CPI -RL (Rural Labourer) – For non-farm rural wages

3. CPI – IW (Industrial Worker) – For wage calculation of Industrial workers

4. CPI – Rural, CPI-Urban, CPI-combined

Note:

1. CPI-Rural: 448 items in baskets, CPI- Urban: 460 items in baskets.

2. CPI-AL, CPI-RL, CPI-IW are brought out by the Labour Bureau (Ministry of Labour and Employment)

3. CPI – Rural, CPI-Urban, CPI-combined are brought out by the Ministry of Statistics and Programme Implementation.

CPI (Combined): Relative Weights

Items	Weights
Food and Beverages	45.86%
Pan, Tobacco and Intoxicants	2.38%
Clothing and Footwear	6.53%
Housing, water and electricity	10.07%
Fuel and Light	6.84%
Miscellaneous	28.32%
Total	100%

Note: CPI (Rural) for housing is not compiled

Core Inflation and Headline Inflation

• • Headline inflation refers to the change in value of all goods in the basket.
  • Core inflation excludes food and fuel items from headline inflation.
  • Since the prices of fuel and food items tend to fluctuate and create ‘noise’ in inflation computation, core inflation is less volatile than headline inflation.
  • In a developed economy, food & fuel account for 10-15% of the household consumption basket and in developing economies it forms 30-40% of the basket.
  • Headline inflation is more relevant for developing economies than developed economies.

 

Core Inflation = Headline Inflation – Inflation in food and fuel

CPI vs WPI

Basis	WPI	CPI (Combined)
Stage of Production (Inflation measurement)	Each stage of production	At the final stage of consumption
Base Year	2011-12	2012
Services included?	No	Yes
Time Lag	Less	More
Data Collection	Centralised	Decentralised
Fluctuation and absolute value	Low fluctuation and Low absolute value	High Fluctuation and High absolute value

3. Consumer Food Price Index (CFPI)

• • It is a measure of change in retail prices of food products consumed by a defined population group in a given area with reference to a base year.
  • The National Statistics Office (NSO), Ministry of Statistics and Programme Implementation (MOSPI) started releasing Consumer Food Price Indices (CFPI) for three categories -rural, urban and combined – separately on an all-India basis with effect from May 2014.
  • CFPI is also calculated on a monthly basis and methodology remains the same as CPI.

CFPI (Combined): Relative Weights

Description	Weights
Cereals and products	34.16%
Pulses and products	6.20%
Oils and fats	9.13%
Egg, fish and meat	6.77%
Milk and products	18.10%
Condiments and spices	4.00%
Vegetables	12.74%
Fruits	4.43%
Sugar etc.	4.47%
Total	100%

4. Producer Price Index (PPI)

• • Price changes from producer perspective
  • Includes services also (unlike WPI)
  • PPI is used by major advanced economies
  • India is one of the few major economies that still use WPI for measuring inflation from producers’ point of view.

 

Note: WPI captures the price changes at the point of bulk transactions and may include some taxes levied and distribution costs up to the stage of wholesale transactions. PPI measures the average change in prices received by the producer and excludes indirect taxes. Thus, PPI excludes chances of double counting.

Note: The Producer Price Index hasn’t been in use in India till January 2024, but NITI Aayog has created a roadmap to introduce it soon. 

5. GDP Deflator

• • Nominal GDP/ Real GDP
  • Measures the changes in prices for all of the goods and services produced in an economy (Comprehensive measure)
  • But the data is not available on a monthly basis since it takes time to compile data of all goods and services.

What is Base Effect? It relates to inflation in the corresponding period of the previous year. If the inflation rate was too low in the corresponding period of the previous year, even a smaller rise in the Price Index (WPI or CPI) will arithmetically give a high rate of inflation in the current year under assessment. On the other hand, if the price index had risen at a high rate in the corresponding period of the previous year and recorded high inflation rate, a similar absolute increase in the price index now will show a lower inflation rate in the current year.

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