CPI is Consumer Price Index, and is a globally used measure for inflation. India also uses CPI to measure inflation, but the WPI or the Wholesale Price Index is more widely watched.
India launched a new Consumer Price Index in February 2011, and Dr. Ajay Shah lists down 4 ways in which this is meaningfully different from the old CPI.Â
- It is disaggregated at the rural and urban levels. The new overallÂ all India CPIÂ is a weighted average of the two. This is in contrast with the earlier CPIs which represented subsets of the population (industrial workers, agricultural labourers, rural labourers, etc.).
- The new series has better geographical as well as commodity coverage. The basket of consumer goods has risen from 25 to 250.
- The weights have been derived from the 61st round of the NSS consumer expenditure survey (2004-05).
- Data for the urban CPI will be collected from 310 towns (compared to 78 in the current CPI-IW, for all India). The rural CPI will use data from 1181 villages. Field officers of the NSSO and the Department of Post will be the price collection agents for urban and rural centers respectively.
The new index reported its highest ever inflation number for January 2013Â when the provisional all India CPI came to 10.79%. This was higher than the 10.56% number for December 2012, and also higher than the WPI number that was reported earlier.
Let’s look at three things that help get a deeper understanding of CPI. The first one is CPI components, and the second one is how this measure is calculated, and finally how is this different from WPI.
Components of India’s CPI
The CPI is calculated for rural areas, and urban areas, and then a combined weight is used to determine the national average. Here are the constituents of CPI.
|Cereals and products||19.08||8.73||14.59|
|Pulses and products||3.25||1.87||2.65|
|Milk and milk products||8.59||6.61||7.73|
|Oils and fats||4.67||2.89||3.9|
|Egg, fish and meat||3.38||2.26||2.89|
|Condiments and spices||2.13||1.16||1.71|
|Non- alcoholic beverages||2.04||2.02||2.03|
|Prepared meals etc||2.57||3.17||2.83|
|Pan, tobaccoÂ and Intoxicants||2.73||1.35||2.13|
|Food, beverages and tobacco||59.31||37.15||49.71|
|Fuel and light||10.42||8.4||9.49|
|Clothing and bedding||4.6||3.34||4.05|
|Clothing, bedding and footwear||5.36||3.91||4.73|
|Recreation and amusement||1||1.99||1.43|
|Transport and communication||5.83||9.84||7.57|
|Personal care andÂ effects||3.05||2.74||2.92|
The most obvious thing about these components is how the weight for housing is zero in rural areas, but it’s a very high 22.53% in urban areas. If anyone has any insights as to why that is, please leave a comment.
How is CPI data collected?
Surveys are conducted to collect price data in urban and local areas. In the urban areas, 310 towns have been identified in the urban areas where the data is collected, and similarly there are 1,182 villages from where data is collected for rural areas. Interestingly, the post office workers are used to collect data in rural areas while employees of NSSO collect data in urban areas. So, this index is a result of survey done every month that helps establish the index values.
Difference between the WPI index and CPI Index
I did a post on the constituents of the WPI index a couple of years ago but I believe the constituents haven’t changed since then. Here are the components of the WPI index.
|Non Food Articles||6.1381|
|Fuel, Power, Light & Lubricants|
|Beverages, Tobacco and Tobacco Products||1.3391|
|Wood and Wood Products||0.1731|
|Paper and Paper Products||2.0440|
|Leather and Leather Products||1.0193|
|Rubber and Plastic Products||2.3882|
|Chemicals and Chemical Products||11.9312|
|Non-Metallic Mineral Products||2.5159|
|Machinery and Machine Tools||8.3633|
|Transport Equipment and Parts||4.2948|
|Basic Metals and Alloys||8.3419|