Measurement Of Inflation


Inflation And Trade Cycles - Concepts
Class - General Awareness For SSC Subjects
 
 
Concept Explanation
 

Measurement Of Inflation In India

  • Inflation in India is measured through two major indices namely Consumer Price Index (CPI) and Wholesale Price Index (WPI). The most important index is All India CPI by CSO. Labor Bureau prepares three CPls for specific occupational groups. WPl is prepared by Office of Economic Affairs, Ministry of Commerce and Industry.
  • The WPI, where prices are quoted from wholesalers, is constructed by Office of Economic Affairs, Ministry of Commerce and Industries. In the case of CPI (prices quoted from retailers), there are several indices to measure it: CPI for industrial laborers (CPI - IL), agricultural laborers (CPI - AL) and rural laborers (CPI - RL) besides an all India CPI.
  • In addition, Gross Domestic Product (GDP) deflector and Private Final Consumption Expenditure (PFCE) deflector from the National Accounts Statistics (NAS) provide an implicit economy - wide inflation estimate.
  • A. Consumer Price Index

    Two Ministries - Ministry of Statistics and Program me Implementation (MOSPI) and Ministry of Labor and Employment (MOLE) are engaged in the construction of different CPls for different groups/sectors. CPI inflation is also called as retail inflation as the prices are quoted from retailers. Following are the various CPls.

    (a) CPI for all India or CPI combined

    (b) CPI for Agricultural Laborers (AL)

    (c) CPI for Rural Laborers (RL); and

    (d) CPI for Industrial Workers (IW)

    (i) CPI by MOSPI (CSO)

  • The CSO, which comes under MOSPI. is constructing the rural, urban and the combined CPIs. They are published from 201l onward. Of these, the CPI combined is the most important of all the CPls as it is relevant for all categories of people.
  • In April 2014, the RBI has selected the all India CPI (of CSO) as the inflation index to target inflation under its new inflation targeting monetary policy framework. RBI's decision has made the CPl as the prime inflation index.
  • On the other hand, the first three indices are for specific occupational categories. The CPI compiled and released at national level by MOLE reflect fluctuations in retail prices relating to specific segments of population in the country like industrial Workers (CP - IW), agricultural laborers (CP1 - AL) and rural laborers (CPI - RL).
  • (ii) CPIs by MOLE (Labor Bureau)

  • The Labor Bureau, Ministry of Labor and Employment, s (MOLE) is preparing different indices for various category em of people. These were CPI for Rural Laborers (CPI - RL). CPI for Agricultural Laborers (CPI - AL) and CPI for Industry etc. Workers (CPI - IW). There was a CPI for Urban Non - Manual,  Employees (CPI - UME), but it was discontinued from April 2010.
  • Since these CPls were for specific categories of workers, lacked the quality of an all India index.
  • What is the difference between the various CPIs?

    Difference between the various CPIs is not just that they measure price level changes for different sectors or groups In addition to such a sector specific price level measurement; these indices different in terms of their geographical coverage, commodities included, weights assigned to the different commodity groups and the base year on the basis of which price level changes are compared.

    The Wholesale Price Index (WPI)

  • The WPI is published by the Office of Economic Adviser Ministry of Commerce and Industry. It is in use since 1942 and is being published from 1947 regularly. It has a long history for serving as the nationwide inflation indicator till the emergence of the combined CPI in 2011. A important feature of the WP which separate it from the CPL is that prices are collected from wholesalers.
  • The new WPI series aims at capturing the price movement Ina more realistic way in keeping with the times. The basic difference between the two series is that the new WPI index with 2011 - 12 as the base year has a total of 697 items including 117 items for primary articles 16 items for fuel and power and 564 items for manufacturing products. The prices tracked ore ex - factory price for manufactured products mandi price for agri commodities and ex - price for minerals weights given to each commodity recovered in the WPI.
  •  Different Price in India
    Index Agency Base Year
    WPI Office of Economic Affairs, Ministry of Commerce and Industries (MOCI) 2004 - 05
    CPI All India, CPI Urban and Rural CSO, Ministry of Statistics and Program me Implementation (MOSPI) 2012
    CPI-AL Labor Bureau, Ministry of Labour and Employment (MOLE) 1986 - 87
    CPI-RL   1986 - 87
    CPI-IW   2001
    Sample Questions
    (More Questions for each concept available in Login)
    Question : 1

    To combat rising inflation, RBI has to do which of the following activities ?

    Right Option : D
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