New consumer price measure to capture nationwide trends

| | Updated on: Feb 17, 2011

India is set to get a new consumer price inflation measure, which could offer a much better picture of price movements at the consumer-level across the country. A broad-based series tracking consumer price inflation across both urban and rural areas is slated to be released on Friday and analysts say this has the potential to become the single index of reference for inflation in the long run.

Starting with the estimates for January, the Government will unveil the new data series, which will essentially be compilations of indices for different states that reflect the price trends. Each State will have two consumer price indices, one for rural and another for urban areas, with calendar year 2010 as the base year. These indices will be added up to arrive at urban and rural indices at the national level, which will then be combined based on their relative weights to get a composite index.

Economists believe that availability of state-wise prices will help assess the origin and impact of price shocks, allowing faster and effective intervention. The new indices will be available for five major groups — Food, beverages and tobacco; Fuel and light; Housing; Clothing, bedding and footwear, and for miscellaneous items.

The National Sample Survey Organisation had been engaged in collecting data for urban centres and the Statistics Ministry had roped in the postal department to collect price data from villages. Currently, there are three major consumer price indices, which offer data for industrial workers, agricultural labourers and rural labourers, apart from an index for urban non-manual employees. These are, however, seen as too narrowly targeted, making them irrelevant for macro policy formulation.

Work for a comprehensive CPI started in 2008. The Finance Ministry instructed the Statistics Ministry to hasten the process for releasing an all-India CPI as it was of the view that WPI-based inflation overstated the level of the price rise in the economy.

The RBI currently uses the Wholesale Price Index as the key inflation indicator while deciding on monetary policies, though central banks in most other countries use a representative Consumer Price Index or a Producer Price Index.

Published on February 18, 2011

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