Inflation measurement in India
There are two main set of inflation indices for measuring price level changes in India – the Wholesale Price Index (WPI) and the Consumer Price Index (CPI). 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 labourers (CPI-IL), agricultural labourers (CPI-AL) and rural labourers (CPI-RL) besides an all India CPI.
In addition, Gross Domestic Product (GDP) deflator and Private Final Consumption Expenditure (PFCE) deflator from the National Accounts Statistics (NAS) provide an implicit economy-wide inflation estimate.
- Consumer Price Index
Two Ministries – Ministry of Statistics and Programme Implementation (MOSPI) and Ministry of Labour and Employment (MOLE) are engaged in the construction of different CPIs for different groups/sectors. CPI inflation is also called as retail inflation as the prices are quoted from retailers. Following are the various CPIs.
(a) CPI for all India or CPI combined.
(b) CPI for Agricultural Labourers (AL)
(c) CPI for Rural Labourers (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 2011 onwards. Of these, the CPI combined is the most important of all the CPIs 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 CPI as the prime inflation index.
(ii) CPIs by MOLE (Labour Bureau)
The Labour Bureau, Ministry of Labour and Employment (MOLE) is preparing different indices for various categories of people. These were CPI for Rural Laborares (CPI-RL), CPI for Agricultural Laborares (CPI-AL) and CPI for Industrial Workers (CPI-IW). There was a CPI For Urban Non-Manual Employees (CPI-UME), but it was discontinued from April 2010.
Since these CPIs were for specific categories of workers, it lacked the quality of an all India index.
Table : Different price indices in India
|Number of Commodities
|Office of Economic Affairs, Ministry of Commerce and Industries
|CPI All India, CPI -Urban and Rural
|CSO, Ministry of Statistics and Programme Implementation
Labour Bureau, Ministry of Labour and Employment
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 (CPI-IW), agricultural laborers (CPI-AL) and rural labourers (CPI-RL).
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 differ 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.
2. 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. An important feature of the WPI which separate it from the CPI is that prices are collected from wholesalers.