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Economy
Inflation
New CPI series: A move towards a unified retail price measure. The CSO published
a new CPI series starting January 2011 for All-India, State and Union Territories. The
new series, with an upgraded base year of 2010, aims to capture the retail price level
on an aggregate basis as well as separately at the urban and rural level. With this, CSO
has overcome the oft cited criticism – the lack of a single measure of inflation at the
household level. However, the new series is unlikely to assume relevance for policy
formation immediately as there is no historical data available for comparison purposes.
Nonetheless, the move towards a single CPI data, as is the norm in other countries, is a
step in the right direction.
CSO publishes new CPI data
The CSO released provisional CPI index level for January 2011, with a new base year 2010. As per
the provisional data, the CPI index level for rural, urban and combined (rural + urban) stands at
107, 104 and 106, respectively. However, in the absence of historical data, the annual rate of
inflation cannot be calculated. Additionally, the press release indicates that it will take a year for
the price series to stabilize and also to put in place a system to receive timely price data. The new
series would include prices of both goods as well as services, thus providing a more comprehensive
measure of inflation at the household level. The weights of the individual items in the new CPI
series are based on the average monthly consumer expenditure by urban and rural households, as
reflected in the NSS 61st round of Consumer Expenditure Survey (2004-05) data (Exhibit 1).
New CPI series – to be an improvement over the existing price data
CPI data is generally used to gauge the overall inflationary environment and policy formulation
(fiscal and monetary). In India, however, the WPI series (more indicative of prices at the
wholesale/producer) is the more relevant price data for policy purposes. This was due to the more
timely release of wholesale price information as also the confusion of multiple CPI that existed in
India. The new CPI series would not only overcome the drawbacks in the existing CPI price series
but also those of WPI. Thus over time, the new CPI series would be a more superior measure of
inflationary pressures in the economy and could gain more prominence from policy perspective. (1)
Currently, we don’t have a single CPI measure but there are three CPI indices for three different
segments of the population – CPI-IW (CPI-industrial workers), CPI-AL (agricultural workers), and
CPI-RL (rural laborers). The new series would give an indication of the price level for various goods
and services for the entire population, alongside a break-up of rural and urban population. (2)
While the base year for CPI-IW is 2001, that for CPI-AL and CPI-RL is even more outdated 1986-
87, making the latter two measures of CPI inflation highly redundant. The new series has
upgraded the base year to CY2010, as more reliable price data, especially from the rural areas, is
available from January 2010 onwards. (3) The WPI data does not give an indication of the price
pressure faced from a household point of view and also completely excludes services. Both these
issues would get addressed in the new series.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Economy
Inflation
New CPI series: A move towards a unified retail price measure. The CSO published
a new CPI series starting January 2011 for All-India, State and Union Territories. The
new series, with an upgraded base year of 2010, aims to capture the retail price level
on an aggregate basis as well as separately at the urban and rural level. With this, CSO
has overcome the oft cited criticism – the lack of a single measure of inflation at the
household level. However, the new series is unlikely to assume relevance for policy
formation immediately as there is no historical data available for comparison purposes.
Nonetheless, the move towards a single CPI data, as is the norm in other countries, is a
step in the right direction.
CSO publishes new CPI data
The CSO released provisional CPI index level for January 2011, with a new base year 2010. As per
the provisional data, the CPI index level for rural, urban and combined (rural + urban) stands at
107, 104 and 106, respectively. However, in the absence of historical data, the annual rate of
inflation cannot be calculated. Additionally, the press release indicates that it will take a year for
the price series to stabilize and also to put in place a system to receive timely price data. The new
series would include prices of both goods as well as services, thus providing a more comprehensive
measure of inflation at the household level. The weights of the individual items in the new CPI
series are based on the average monthly consumer expenditure by urban and rural households, as
reflected in the NSS 61st round of Consumer Expenditure Survey (2004-05) data (Exhibit 1).
New CPI series – to be an improvement over the existing price data
CPI data is generally used to gauge the overall inflationary environment and policy formulation
(fiscal and monetary). In India, however, the WPI series (more indicative of prices at the
wholesale/producer) is the more relevant price data for policy purposes. This was due to the more
timely release of wholesale price information as also the confusion of multiple CPI that existed in
India. The new CPI series would not only overcome the drawbacks in the existing CPI price series
but also those of WPI. Thus over time, the new CPI series would be a more superior measure of
inflationary pressures in the economy and could gain more prominence from policy perspective. (1)
Currently, we don’t have a single CPI measure but there are three CPI indices for three different
segments of the population – CPI-IW (CPI-industrial workers), CPI-AL (agricultural workers), and
CPI-RL (rural laborers). The new series would give an indication of the price level for various goods
and services for the entire population, alongside a break-up of rural and urban population. (2)
While the base year for CPI-IW is 2001, that for CPI-AL and CPI-RL is even more outdated 1986-
87, making the latter two measures of CPI inflation highly redundant. The new series has
upgraded the base year to CY2010, as more reliable price data, especially from the rural areas, is
available from January 2010 onwards. (3) The WPI data does not give an indication of the price
pressure faced from a household point of view and also completely excludes services. Both these
issues would get addressed in the new series.
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